The spat between the USA and China initiated by President Trump’s decision to introduce increased levies on around $50 billion worth of Chinese imports is currently being played out mainly in financial markets. This is bringing stock market investors into the dispute with particular sectors and companies that new import taxes being introduced by both sides leading to panic and significant share price swings in recent days. Those investing online in companies that sell the areas affected are panic selling as both sides announce new levies.
Speaking to the Financial Times, Rafiki Capital Management head of research Steven Englander commented be believes that hitting the financial markets has been the intended strategy of China as it fights back against Trump’s protectionist measures. The US President has repeatedly referred to the success of the stock market in the period since his election to justify the success of his mandate to date. This has led China to counter raising taxes on Chinese imports by seeking to inflict as much visible pain on the stock market as possible.
Boeing is the Dow Jones Industrial Average’s single biggest constituent and Beijing announcing new tariffs on aircraft weighing between 15,000 kg and 40,000 kg sent its stock down 5.7% on Wednesday as investors panicked at the announcement. The share price did subsequently recover to close only 1% down but the company’s weighting meant that at one point the Dow Jones was down more than 2%. Another big Dow Jones company that relies to a large extent on the Chinese market is Caterpillar, which also dropped by 4.8% at one point on Wednesday.
With Trump’s promise to return jobs to the USA still key to his support, many believe that he will ramp up his protectionist measure against Chinese imports in the run up to midterm congressional elections in November. This is almost certain to lead to retaliatory measures such as those we have seen this week. It’s certainly something for investors to have in mind. The products of major American companies and industries for whom China is a key export market are likely to be targeted by any Chinese response and that is likely to weigh heavily on their share price.
A continuation or escalation of the spat is unlikely to end positively for the economic growth and financial markets of either country. Analysts believe that negotiations will result that will hopefully resolve the matter. However, the posturing in the lead up to negotiations commencing could lead to interim pain for investors in companies that prove to be collateral damage.