US equities gave a tumultuous response to President Donald Trump’s newly imposed tariffs on $60bn in Chinese imports to the US as the Dow closed down more than 700 points or -2.93% on Thursday.
The S&P 500 plunged -2.52% and Nasdaq -2.43% roiled by the threat of a mounting trade war with China.
Speaking at a press conference today Trump said he spoke to Chinese officials at the highest level including President Xi Jinping and that he "asked them to reduce the deficit by $100bn. It’s a lot so that would be 25% depending on how you figure".
Word is 'reciprocity'
Trump added: "The word I want to use is reciprocal. When they charge 25% for a car to come in and we charge 2% to come in to the US that’s not good."
The laundry list of around 1,300 items proposed include technology products which the US government hopes will penalise what it says are unfair practices by China around intellectual property.
The full list will be published in 15 days. Trump cited a figure of $60bn but the White House administration used $50bn in earlier reports to value the imports from China affected - albeit a figure described as a 'conservative estimate of harm'.
Everett Eissenstat, deputy director of the White House National Economic Council is reported to have said: “What you’ll see is that many of these areas are those where China has sought to acquire advantage through the unfair acquisition or forced technology transfer from US companies with an aim toward establishing its own competitive advantage,”
China talks retaliatory
Comments from China's government veered between measured and forceful. According to news reports the Commerce Ministry statement said, "China absolutely won't sit back and allow its legitimate rights and interests to be harmed and will take all necessary measures to protect”
China's Foreign Ministry spokeswoman Hua Chunying reaffirmed the statement in a conference saying, "we firmly oppose the US' acts of unilateralism and trade protectionism." She added that the two top economies maintains communication with each other on trade issues at various levels and would properly manage and constructively address trade disputes.
However, Hua highlighted that she's noticed in the US, the catch words to describe the restrictive measures, "fairness" or "reciprocity" suggesting that the trade imbalance was a result of many factors including "the US policy restricting its exports to China."
Hua claimed that 62% of US soybeans and 25% of Boeing planes were exported to China and questioned its fairness, "How many toys do we have to sell to equal the value of one Boeing plane?"
Keep calm and carry on?
Michael Purves, chief global strategist at Weeden & Co. argued tariffs was one more "ugly chunk of news the markets have to contend with" and a part of the escalation of news flow sparking a sell off.
However, he said currently the tariff news is a lot of posturing and a lack of details meant it was hard to determine what the economic fall out is going to be.
A view shared in part by James Athey, senior investment manager, Aberdeen Standard Investments. In an interview, Athey describes volatility as more definitive of market conditions this year.
He said: "In 2017 the volatility everyone pretty much agreed was an abberation and that wasn’t healthy and wasn’t natural and now we’re seeing more natural markets where we are seeing an ebb and flow in the short term but not demonstrative of where we are heading."
In 2017, investors were used to shrugging off geopolitical news. Purves explains: "I would add that almost every VIX spike through 40 from a low base if you go back to the last several years you get a big market sell off, you get a relief rally and then you retest that first low. So the sooner we test that earlier February low probably better for the market bulls."
Some investors agree and remain stoic, viewing the trade tariffs as Athey describes as "early skirmishes" that are not indicative of where policy may end up.
Keeping an eye on the larger picture and watch for negotiation between the parties as commentary from both sides may not necessarily match the actions or end goal of either government suggests Athey.
Whether or not the dip is a buying opportunity depends on your position and your time horizon says Athey but in spite of tariffs equities "remain a good investment at the moment".