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Major Indexes Rattled as China Announces New Tariffs

The long simmering trade war between the U.S. and China is heating up and the global markets are reeling. China announced on Monday, May 13 that it was raising tariffs on $60 billion-worth of U.S. products. The move is in retaliation to the increase of duties President Trump set on $200 billion-worth of Chinese imports from 10% to 25%.1 When the world’s two largest economies are engaged in a trade war, little else matters.

The TSX, Nasdaq, Dow Jones Industrial Average and the London Stock Exchange are at two-month lows as fears of a full-blown trade war between the U.S. and China could derail the global economy.

President Trump claimed that China reneged on some of its earlier agreed-upon negotiations. China, saying it will “never surrender to external pressure” fought back. Just before announcing the new tariffs on U.S. goods, President Trump warned China not to retaliate.

China didn’t blink. Instead it raised tariffs on more than 5,000 U.S. products. Items being hit with the highest tariffs include food products, alcoholic beverages, chemicals, manufacturing products, and consumer goods.

While President Trump has claimed that Chinese firms would bear the cost of his latest tariffs, this clearly won’t be the case; U.S. companies will simply pass the tariffs onto customers. That means everything from TVs, DVD players, cameras, headphones, meat, honey, coffee, tea, fruit juice, beer, wine, and gin are going to cost more.

Not surprisingly, financial markets around the world tumbled on the news. The U.S. stock market suffered one of its worst days in 2019 with the Dow Jones Industrial Average tumbling more than 600 points. Leading the sell-off are those stocks that will be hurt by the trade war most, namely, technology stocks and major exporters.

How a Trade War Could Impact the Canadian Economy

On top of the short-term stock market losses, a trade war could have a lasting indirect impact on the Canadian economy, with the economy shrinking around 0.8% or 150,000 jobs.2

Keep in mind, China is not pleased that Canada, in response to an extradition request from the U.S., arrested Huawei’s Chief Financial Officer, Meng Wenzhou. Since then, China has blocked a number of Canadian products, including canola imports. The trade war with the U.S. could result in China actually broadening its boycott of Canadian agricultural products.

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Sources:

  1. McDonald, J. “China adds tariffs on $60 billion of U.S. goods in retaliation”, Global News website, May 13, 2019; https://globalnews.ca/news/5269957/trump-twitter-china-trade-war/.
  2. Babad, M. “How trade wars are wounding Canada’s economy,” The Globe and Mail website, May 13, 2019; https://www.theglobeandmail.com/business/briefing/article-how-trade-wars-are-wounding-canadas-economy/.

Photo Credit: iStock.com/Man at Work