Market Falls As China Retaliates For U.S. Tariff Hike On Friday

On Friday, the Trump administration raised tariffs on $200 billion in Chinese exports to the United States to 25% from 10%. The move, the administration said, was in response to Chinese efforts to walk back provisions the country had agreed to, according to the White House, in talks about a pact that would end the trade war between the two countries.

Even though China promised to retaliate for the U.S. move, New York financial markets shook off the news with the Standard & Poor’s 500 actually gaining 0.37% on the day.

Today, Monday, May 13, it’s a different story. China announced the first retaliatory measures–increased tariffs on some $60 billion in U.S. products imported in China. The announcement was timed to arrive just before the U.S. markets opened and with a sense that the U.S. will up the stakes again, maybe as early as this afternoon, U.S. stocks have tumbled. As of 2 p.m. in New York, the S&P 500 was down 2.30% and the Dow Jones Industrial Average was lower by 2.44% of 659 points. The NASDAQ Composite Index fell 3.21% and the Russell 2000 small cap index was lower by 3.05%.China’s higher tariffs will include tariffs of as much as 25% on 2,494 products  ranging from small aircraft, computers, and textiles to chemicals, meat, wheat, wine and LNG. Some auto parts remain exempted from retaliatory charges. Imports of cars aren’t affected. Other U.S. goods will be subject to tariffs of 5% to 20%. The new tariffs will go into effect on June 1.

Which, in theory, would allow time for the two countries to resolve their differences–except that the next move looks to be higher 25% U.S tariffs on an additional $320 billion in Chinese exports to the United States. That retaliation to the Chinese retaliation could be announced as early as this afternoon.There’s also the likelihood that higher tariffs on $60 billion in U.S. goods isn’t the last action by China. In the wings, I fear, as non-tariff restrictions on U.S. goods such as soy beans and liquified natural gas that would cut Chinese purchases of those commodities.

Adding to market nervousness today is a report out of Europe that the European Union is readying a list of potential trade measures if the Trump administration goes ahead with threats to impose higher duties on European auto exports to the United States.As of 2 p.m. in New York, the Standard & Poor’s 500 at 2815.25 has dropped below support at the 50-day moving average of 2861.96. The 200-day moving average provides the next support to the index at 2775.85.