U.S. stocks started the day in the green with the Standard & Poor’s 500 stock index up 0.44% as of 9:33 a.m. New York time. The index was still in the green as of 11 a.m. (up 0.38%) but then came the retreat. As of 11:30 a.m. the S&P 500 was off 0.37%. The Dow Jones Industrial Average was lower by 0.25% and the NASDAQ Composite had declined 0.64%. The drop in the indexes came even as oil rallied on news that John Bolton, known to favor bombing Iran to prevent Iran from developing a nuclear bomb, had been appointed as national security advisor in the White House. U.S. benchmark West Texas Intermediate was ahead 1.91%. The Energy Select Sector SPDR ETF was up 1.22%.
That modest decline for U.S. stocks was absolutely heady performance in contrast to the drop in global equities, which seem to be taking the tariff war between the United States and China seriously indeed. The Nikkei 225 in Toyko closed 4.51% lower. Hong Kong markets were lower by 2.45%, Shanghai was off 2.86%, and Seoul was down 3.37%.
This morning the Chinese government responded to President Donald Trump’s announcement of higher tariffs on $50 billion in Chinese goods by unveiling tariffs on $3 billion in U.S. goods. Goods targeted for higher tariffs include wine, apples, and ethanol. Beijing billed this round of targets as a response to higher U.S. tariffs on imports of steel and aluminum. Chinese officials said that a second round, in response to the $50 billion in goods targeted by the U.S. yesterday, could include soybeans, airplanes, cars, and cotton.
Overnight economists have been hard at work modeling the impact of the new U.S. tariffs. If the U.S. imposes a 25% duty on $50 billion of imported goods, the additional $12.5 billion tariff is equivalent to an additional 2.9% charge on all of China’s exports, according to JPMorgan economists in Hong Kong. “From a macro perspective the additional tariff is only equivalent to 0.1 percent of China’s GDP and affected exports only account for 2.2% of China’s total exports,” they wrote in a note.
Meanwhile, the Trump administration announced temporary exemptions to the steel and aluminum tariffs for producers in the European Union.