The President of the United States, Donald J. Trump, surprised the economic world Sunday (4/5), tweeting that he would raise import taxes on $200 billion of all Chinese products to 25% from 10% as of Friday, stating that he feels as the tariff paid by China has not been impactful for US and its product costs. Before the announcement, the 25% tariffs on Chinese imports were only applied to high tech goods. This comes as a major turnaround as the US and China was in the middle of trade negotiations to offset the recent trade war between the two countries. The Wall Street Journal, citing unidentified sources, said that the Chinese government is now considering canceling this week's talks. Beijing has previously responded U.S. threats by saying it wouldn't negotiate under pressure.
Trump’s recent tweet has caused significant downturn to financial markets in both US and China, as fears of an all-out trade war came back. Wall Street continues to plunge, decreasing from 12.977 to 12.614 as of Thursday. Furthermore, the Dow Jones Industrial Average fell by 450 points, and the S&P 500 went down by 1.55 percent. China’s SSE Composite Index dropped by 2%, while the value of Yuan tumbles to its lowest rate since January. Recent tweets by Trump has proven that the President has major power in driving the financial market, as even news of potential import tariffs caused great distress for investors not only in US and China, but throughout the world, as indices in Asia Pacific nations, Australia, and even the JCI has went down this week.
As of Friday (10/5), the US government has followed through on Trump’s threat. American manufacturers will have to raise prices, as pricing from China will surge. It is expected that the US consumer prices will rise modestly. It must be noted, however, that higher prices will not be a big problem for United States, because the rate of inflation is currently very stable in America. On the other hand, the upcoming regulation has all the makings of a complete disaster for stock markets around the world. This could lead stock markets, not only in China, to downturn even more in the weeks ahead. Along with the downturn, it will send external risks to the U.S. economic outlook soaring, for China has said that they will retaliate.
Sources:
CNBC
CNN
Financial Times
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