We’ve all heard the many blown-up promises of the Trump Administration: he said everyone would love him and he’d improve relations with countries all over the world. He said he’d be great for the economy. He said a lot more. But we’ve also come to expect that most of what he says is one great big lie, drawn out over an extended period of time. Global stocks are all over the place today, in large part due to Trump’s recent threat of tariffs. This is good news for absolutely no one.
Trump announced a surprise hike on tariffs: ten percent on nearly $300 billion worth of goods stamped “Made in China.” This new round of the trade war will begin on the first of September. Why he did it is anyone’s guess, but China’s government predictably responded with threats of their own. Unfortunately the Chinese didn’t say exactly what they would do, save for retaliate. Ignorance is never good for the world economy, and it had a chilling effect on today’s markets in London, Frankfurt, Tokyo and Hong Kong.
China’s currency lost value compared to the dollar, falling to 6.9520, the lowest since December 2018.
On Thursday the Dow Jones Industrial Average fell about 281 points because of the news.
Although the proposed tariffs aren’t huge in comparison to the GDP of either country, the real difference is in the mind of the investor. Maybe a year ago — or even a few months ago — investors may have assumed that the trade war would end quickly. But Trump shows no signs of wearing down, and neither do the Chinese. If this new status quo persists for too long, the economies of both countries will begin to crumble, and so too will the economies of smaller countries all over the world.
Because consumer confidence is beginning to falter in both countries, China’s economy has already shown strong signs of slowing down due to the trade war. Sales of electronic goods and some vehicles are slowing down. While this pressure may eventually force Chinese President Xi Jinping to find common ground with Trump soon, no one should expect this outcome.
China’s imports have also slowed to a crawl. Integrated circuits, industrial products, and military purchases are declining as the war drags on. Consumer spending even during a big Chinese holiday — National Day break — didn’t give investors much confidence. It was the slowest period since the holiday started in 2000.
It’s anyone’s guess what will happen next.