On Tuesday President Trump’s comments concerned the stock market. He said that he’s willing to impose more tariffs on China. President Trump’s harsh statement about the possibility of a China trade deal reflects continued friction between the world’s two largest economies. In a cabinet meeting on Tuesday, President Trump said “We have a long way to go as far as tariffs, where China is concerned, if we want. We have another $325 billion that we can put a tariff on if we want.”
President Trump also accused China of breaking the deal. He referred to an escalation in the US-China trade war in May. He said, “We’re talking to China about a deal. But I wish they didn’t break the deal that we had. We had a deal where China opened up.”
Ups and downs in US-China trade relations
In the past, President Trump accused China of backtracking from a trade deal. In a similar statement on May 14, he said, “We had a deal that was very close, and then they broke it. They really did.”
In May, President Trump increased tariffs on Chinese goods worth $200 billion. China retaliated by increasing tariffs on US imports worth $60 billion, which intensified the trade tensions. Concerns about the China trade deal took a big toll on the stock market. The S&P 500, the NASDAQ Composite, and the Dow Jones fell 6.6%, 7.9%, and 6.7% in May, respectively.
At the end of June, investors’ hopes about the China trade deal regained strength. President Trump met President Jinping on the sidelines of the G20 meeting in Japan. After the meeting, both of the countries agreed to resume negotiations and hold off on new tariffs.
China didn’t like Trump’s comments
China didn’t seem to like President Trump’s comments. Geng Shuang, the Chinese Foreign Ministry’s spokesman, said that new US tariffs “would create a new obstacle for U.S. and China trade negotiations, would make the road to coming to an agreement longer,” according to a Bloomberg report. Shuang added that China still expects “consultation and dialogue” to help resolve US-China trade tensions.
Earlier this week, China released its dismal second-quarter GDP data, which grew 6.2%—the slowest in the last 27 years.
While President Trump continues to accuse China of breaking the deal, the country seems to be playing the victim card. China highlighted its willingness to negotiate with the US.
According to a recent CNBC report, China has “suddenly” added Commerce Minister Zhong Shan to the trade negotiation team. In June, Shan was present during the Trump-Xi meeting in Japan. Many US officials think that he’s a hardliner. Adding Shan to the team shows China’s stiff stance on trade with the US.
US stock market wary about China trade deal
Earlier this week, the US stock market reached an all-time high due to hopes of an interest rate cut in July. However, President Trump’s comments on the China trade deal and his threat of imposing new tariffs concerned investors. On Tuesday, the S&P 500 benchmark, the Dow Jones, and the NASDAQ Composite fell 0.3%, 0.1%, and 0.4%, respectively.
At 10:30 AM ET on Wednesday, the S&P 500, the NASDAQ Composite, and the Dow Jones Industrial Average fell 0.3%, 0.1%, and 0.2%, respectively, for the day.
At the same time, General Motors (GM) and Ford (F) fell 1.1% and 1.5%, respectively. Both of the companies have faced heat from the global trade war in the last year. The trade war has taken a toll on their profitability. In the last few years, these automakers have increased their investments in China in hopes of huge future growth potential.
What could be driving semiconductor companies?
Some US semiconductor companies are sensitive to updates related to the China trade deal. They were largely trading on a slightly positive note on Wednesday. Investors’ high expectations from semiconductor companies’ second-quarter earnings could be one of the key reasons for these gains.
On Wednesday morning, NVIDIA, Qualcomm, Intel, Micron, Advanced Micro Devices, and Broadcom were trading with 0.9%, 0.6%, 0.4%, 0.7%, 0.6%, and 0.3% gains, respectively.
In May, when the US-China trade relations deteriorated, the Trump administration restricted these semiconductor companies from doing business with Huawei. Early in July, President Trump eased the restrictions on Huawei, which boosted investors’ confidence. Year-to-date, NVIDIA, Qualcomm, Intel, Micron, Advanced Micro Devices, and Broadcom have risen 25.2%, 33.0%, 4.8%, 35.7%, 83.4%, and 11.7%, respectively.
Recently, we discussed how Huawei’s recent plans of a big layoff from its research labs across the US could be negative for US-China trade relations.
Which stocks fell the most?
Union Pacific (UNP), CSX (CSX), American Airlines (AAL), Dow, Walt Disney, JPMorgan Chase, and IBM were among the top losses on Wednesday. The shares fell 5.2%, 11.4%, 1.7%, 0.8%, 0.7%, 0.9%, and 0.8%, respectively.
CSX released its dismal second-quarter results early on Wednesday. The company missed analysts’ profit estimates. CSX cut its fiscal 2019 outlook due to trade concerns, which triggered a sell-off in railroad stocks including Union Pacific. So far in July, Union Pacific, CSX, American Airlines, Dow, Walt Disney, JPMorgan Chase, and IBM have risen 3.6%, 2.9%, 5.0%, 6.1%, 3.2%, 3.0%, and 4.1%, respectively.
In the next few weeks, many large companies will be reporting their quarterly earnings results. The earnings reports, along with developments related to the China trade deal, will likely keep the US stock market highly volatile.