Last week, the White House announced that the U.S. would be increasing tariffs on $200 billion worth of Chinese goods from 10% to 25%. In response, Chinese President Xi Jinping retaliated with new tariffs of his own, increasing the tariffs on 2,493 US products to 25%.
These latest escalations in the trade war between the US and China mark the end of what has been a months-long trade truce between the two nations – and Wall Street has not taken the news lightly.
In the wake of the US-China trade war being ramped up once again, the US stock market has taken a beating. At the closing bell on Monday, the Dow Jones Industrial Average was down over 600 points as companies are scrambling to reshuffle their supply chains and maintain their profit margins in the face of steeply increased taxes on foreign goods.
While the announcement of these new tariffs has been brutal for the US stock market, there is no denying that they are a necessary sacrifice. By taking China to task over unfair trade policies and economic practices, President Trump is merely doing what past leaders should have done a long time ago.
For decades, China has been allowed to impose stiff tariffs on U.S. goods, steal our intellectual property, unfairly manipulate their currency, and more – all without any response from the United States. These actions and their consequences were not lost on past Presidents, but no President before Donald Trump has been willing to accept the economic toll required to combat China’s unfair practices.
The result is a trade deficit that has persisted for years and unfair agreements that enable China to reap the rewards of an unequal partnership while the US economy suffers. By imposing these new tariffs on China, President Trump is simply doing what should have been done a long time ago by our former Presidents.
That doesn’t make these new tariffs any less painful for US consumers and investors, though. In the wake of trade war escalations between the US and China, consumers in the United States are likely to see the price of many goods increase in the months and years to come. US investors, meanwhile, are already feeling the pain of these new tariffs as the stock prices of companies in a wide range of industries take a beating.
For consumers, not much can be done to alleviate the pain of paying higher prices for goods than they are used to paying. We’ve seen what looked like the end of the trade war between the US and China multiple times before, only for new tariffs to be announced.
There is a bit of good news though, yesterday the market rallied back from its Monday’s losses. Most analysts agree that the market overreacted to the trade war news. The panicked sell offs created buying opportunities for investors who are willing to gamble on the hope that no more new tariffs will be announced.
Regardless of the economic impact and the effect that the trade war has on the markets, though, President Trump is adamant that these tariffs are necessary in order for the United States to create a fair and equal trading relationship between the US and China – and he’s willing to make the sacrifice that no President before him has been willing to make in order to reverse years of damage.
There’s no ignoring the economic pain that goes along with the escalating trade war. If Trump is right, though, this economic pain will be temporary, and the United States will be left with a more robust economy in the end.