Wall Street Indexes Fall As China Retaliates With Increased Tariffs
Following China's announcement that it would be retaliating to the United States' recent increase in tariffs, Watt Street immediately reacted with its indexes plummeting downward.
China recently revealed that it was going to be increasing tariff rates on all US goods as a response to Trump's tariff hikes on $300 billion worth of Chinese imports. The tit-for-tat measures sent investor confidence at an all-time low as fears of a possible economic recession triggered massive-scale asset selling.
The Dow Jones Industrial Average plunged by more than 2.16 percent or 560.03 points, ending at 25,382.34 by the end of trading. The S&P 500 also didn't fare well, dropping by 2.15 percent or 61.84 points, ending at 2,819.56. The story is also more of the same for the NASDAQ Composite, which lost 222.72 points or 2.81 percent, ending at 7,694.22.
Prior to the slew of tariff hikes, the market was in a good position as it expected an amicable resolution to the on-going trade negotiations. However, things didn't go as well as expected sending share prices down as investors scrambled to transfer to lower-risk assets. China did send its negotiators to the United States following Trump's tariff threat, but negotiations apparently crumbled as China now prepares to fire its own volley.
Market analysts believe that the situation could get very dangerous, very quickly, if no resolution is reached. If both parties do not come to an agreement, a possible crisis similar to the one in 2008 could happen. The market is simply now just reacting after it realized how bad the situation really is and how the talks have all but broken down.
Investors are mostly now looking to transfer their assets to instruments with less risk. Bonds have recently rallied in the past few days and the price of precious metals such as gold has gone up due to increased demand.
Given the situation, it would be understandable that investors are now getting out of equities and transferring to treasuries and cash. While the outcome of the talks is still uncertain, and highly difficult to predict, investors are now selling first just in case.
If the situation does not improve, there could also be an irreversible impact on the economy, possibly leading to further slow down.
The damage done by the tit-for-tat move will most likely impact corporate profits more at first than the country's GDP, as corporations stand to lose significantly. As companies deal with the increased tariffs, the country's consumption-driven economy is the next one to suffer.