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Trade tensions temper U.S.-China markets

JUN. 03, 2019

graph of U.S. and Chinese stocks diverge on trade concerns

High-level trade negotiations between the U.S. and China stalled earlier in May, as officials in both countries saw potential for a better deal in part because of improving economic reports. The Trump administration hiked tariffs on $200 billion of Chinese imports from 10% to 25%, then signaled a broader 25% tariff on all remaining Chinese imports, worth roughly $320 billion. Both nations have exchanged escalating trade blows: China imposed new tariffs of its own on $60 billion of U.S. products, mostly agricultural imports; the U.S. followed suit with targeted sanctions against Chinese telecom firm Huawei.

Equity markets in both countries have reeled in response to the ongoing skirmish. Coincidentally, spikes in trade rhetoric have appeared around the same time as new highs in the S&P 500®. But the impact has been noticeably worse in Chinese equity markets, which have dropped 10% since mid-April. Behind the divergence is the ability of the U.S. to pull multiple levers to help limit the damage on the broader U.S. economy. U.S. trade officials put some of these levers to use recently, cancelling tariffs on steel and aluminum imports from Canada and Mexico and delaying punitive trade barriers on auto imports from Europe and Japan.

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