Rally shifts into reverse as Trump administration announces more U.S. tariffs on Chinese exports likely on the way

Monday, October 29, started off with a technology-led rally. As of 10:04 a.m. New York time the Standard & Poor’s 500 was up 1.81% and the technology-heavy NASDAQ Composite was higher by 1.75%.

And then Bloomberg reported that the Trump administration was preparing to announce tariffs on an additional $250 billion in Chinese exports in December if President Donald Trump and President Xi Jinping failed to reach an agreement in talks that are scheduled to take place on the sidelines of the next Group of 20 meeting on November 30-December 1. If the tariffs are announced in December, they could go into effect 60 days later, on a date that would roughly coincide with China’s Lunar New Year holiday in early February.

The good news is that tariffs on another $250 billion in Chinese goods would be the last round of higher U.S. tariffs because the Trump administration would have slapped higher tariffs on all the goods that the U.S. imports from China.

The bad news is that it’s just about certain that the Chinese would retaliate with their own trade measures if the U.S. administration moved ahead with its plans. And there is a solid likelihood that the Chinese will feel compelled to respond to the announcement of plans to announce more tariffs. None of this will do anything good for the global economy, for the Chinese economy, or for the U.S. economy as slower growth with higher inflation works its way into the world economy.

Not surprisingly, U.S. stock indexes plunged. The S&P 500, which had been as high as 2706.30 (a 1.81% gain) reversed course and fell to 2606.76 (down 01.94% on the day) by 3:44 p.m. New York time. The index did make up significant ground by the end of the season, closing down only 0.66% at 2638.75. That’s still a swing of almost 2.5 percentage points from high to close.

The NASDAQ Composite went from a gain of 1.75% as of 10:04 to a loss of 3.26% at 3:44 p.m. before closing down “just” 1.64% for the day.

Asian markets will open with this action in New York in the headlines. The reaction isn’t likely to be positive.

Which would mean that U.S. markets will open Tuesday looking at Asian markets in turmoil.

And that’s on top of whatever declines hit New York markets before they open out of European markets already shaken by Angela Merkel’s surprise announcement that she will step down as party leader and will remain as Chancellor only through the end of her term in 2020. (She could leave that office earlier if the new head of the Christian Democratic party is a Merkel enemy form within her own party such as Friedrich Merz.)

Whatever any European politician thinks of Merkel, her departure as the head of the German government leaves the European Union facing a huge leadership vacuum.

And to go back to end this post with the U.S.-China tariff war, the timing of the G20 meeting means that financial markets will be left to twist in the wind–subject to their own worst imaginings–until at least November 30.

Today’s action has pushed the Dow Jones Industrial Average into correction territory where it joins the S&P 500, the NASDAQ Composite, and the Russell 2000.