S&P 500 Tumbles After Trump Threatens China and Japan on Trade


Talking Points:

  • The $267b tariff figure would be supplementary to the proposed $200b and $50b already facing China
  • President Trump discussed trade negotiations with Japan, possibly opening a new front in the trade war
  • Consult our economic calendarfor dates of upcoming data releases and market events

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President Trump Threatens China with Additional Tariffs

Markets were rattled as President Trump discussed trade policy from Air-Force One Friday afternoon. In a week dominated by trade fears, the President threatened he could hit China with $267 billion in tariffs. He said they were ‘ready to go’ and could be issued on short notice. The tariffs would be additional to the $50 billion already enacted and the $200 billion currently under discussion.

The public comment period for $200 billion worth of tariffs on China ended this week and markets expected a decision Friday. If enacted, the $200 billion in addition to the metal tariffs and the $50 billion of tariffs already imposed would be a significant portion of China’s total exports to the United States. At this time, no decision has been announced so the threat of another $267 billion is quite inflammatory. Should all proposed tariffs eventually be imposed, the total would surpass China’s total exports to the United States. In the past, President Trump has threatened to enact tariffs on all Chinese exports. The additional $267 billion would effectively do that.

Read up on the history of economic conflicts with A Brief History of Trade Wars.

A New Front in the Trade War

Japan’s stance in the ongoing trade wars has been relatively reserved as Japanese officials have shown little interest in negotiating. Until today, the US administration has made few direct comments on the trade deficit with Japan. President Trump looked to change that, saying “if we don’t make a deal with Japan, Japan knows it’s a big deal.” Possibly alluding to increased pressure, the President will undoubtedly seek to reduce the trade deficit. Already facing metal tariffs, Japan’s willingness to negotiate may change if auto tariffs are proposed.

NAFTA ‘Close’ to a Resolution

One positive on the trade war front is NAFTA. In a breakthrough deal two weeks ago, Mexico and the United States agreed to a bilateral deal separate from the trilateral agreement. After the negotiations, both US and Mexican officials discussed their willingness and desire to negotiate with Canada to reach a trilateral agreement and keep NAFTA in place.

This week, Canada’s Freeland and US Trade Representative Lighthizer have negotiated daily and the mood surrounding the talks is reportedly positive. Although discussions have been close to resolution for what feels like months, they may finally be concluded as daily progress is cited and the issues impeding a deal are resolved. On his flight, President Trump said “Canada is moving along and we’ll see what happens,” referring to NAFTA negotiations.

S&P 500 Price Chart 10-Minute Time Frame, September 7th

S&P 500 Tumbles After Trump Threatens China and Japan on Trade

Dow Price Chart 10-Minute Time Frame, September 7th

S&P 500 Tumbles After Trump Threatens China and Japan on Trade

NASDAQ Price Chart 10-Minute Time Frame, September 7th

S&P 500 Tumbles After Trump Threatens China and Japan on Trade

As we look to markets, a broad sell-off in US equities commenced in response to the comments. The S&P 500, Dow, and NASDAQ all shed what little gains they had and the threats cemented a decidedly red week for US equities. Moving forward, markets should remain timid until an announcement on the $200 billion in tariffs is made.

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–Written by Peter Hanks, Junior Analyst for DailyFX.com



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