Stocks Fall as Wall St. Turns its Focus to Escalating U.S.-China Trade War

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Investors moved their money into haven assets on fears that worsening ties between the world’s two biggest economies would affect global growth.CreditToshifumi Kitamura/Agence France-Presse — Getty Images

By Matt Phillips and Prashant S. Rao

June 19, 2018

Wall Street’s focus returned on Tuesday to a fast escalating trade war and the damage it could do to business confidence and economic growth. Global stock benchmarks and commodity prices fell.

The trigger for the drop was the statement by President Trump on Monday that his administration was prepared to impose tariffs on a further $200 billion of Chinese goods, and warned of even more penalties if Beijing fought back. The United States and China have already announced plans for tit-for-tat tariffs on $50 billion worth of imports each.

But with the latest threat from Mr. Trump, the White House is threatening to impose trade restrictions on as much as $450 billion of imports from China, a figure that is nearly equivalent to the total value of goods that China sold to the United States last year.

On Tuesday, a spokesman for the Chinese Foreign Ministry, Geng Shuang, said that the United States was “abandoning all the consensus that has been achieved, changing its mind constantly.”

And across financial markets, investors seem to be starting to take seriously how such a trade conflict could start to drag on a global economy that continues to be expected to grow at a relatively strong 3.9 percent in 2018, according to International Monetary Fund forecasts.

In the United States, the Dow Jones Index, the Standard & Poor’s 500-stock index and the tech-heavy Nasdaq composite all dropped. Although the declines were around 1 percent at midday, they were notable moves for a market that has recently drifted sideways even in the face of rising trade tension. The Dow sank into negative territory for the year, and the S&P 500 and Nasdaq recorded their biggest drop in several weeks.

Industrial companies including Caterpillar, Boeing and DowDuPont weighed heavily on the benchmarks, dropping more than 3 percent, while Apple — which sells hundreds of millions of iPhones in China — dropped about 2 percent.

The trading followed declines in stock markets in Frankfurt, London and Paris. Shares in Hong Kong, Tokyo and mainland China also closed sharply lower.

Investors moved their money into haven assets like 10-year United States Treasury bonds, and the Japanese yen. The yield on the benchmark 10-year Treasury note, which moves in the opposite direction as its price, fell below 2.85 percent early Tuesday, in a sign at least some investors were concerned about risks to growth.

In the markets for commodities, the raw materials on which the global economy runs, the declines were widespread. Copper, a barometer for industrial activity, was down, as was crude oil.

The sharpest drop was in the agricultural commodities markets, where the price for soybeans — a politically sensitive crop given President Trump’s support among farmers — plunged Tuesday. China, the world’s largest consumer of soybeans and the largest buyer of American soybeans, has threatened to levy tariffs on American exports as part of the growing trade hostilities.

The reaction of global markets underscores the fact that the dispute between China and the United States is actually part of a broader protectionist drive by the Trump administration that has already disrupted global trade.

“Most damaging for businesses and investment,” analysts at the Swiss bank UBS said in a report on Tuesday, “is perhaps rising uncertainty caused by lasting trade disputes, which could delay or significantly change business and investment decisions.”

Follow Prashant S. Rao on Twitter: @prashantrao.

Elsie Chen contributed research from Beijing.