Stocks Fall as China’s Response to U.S. Tariffs Stokes Economic Anxiety

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The exterior of the New York Stock Exchange after the closing bell, Nov. 20, 2018. The stock market’s gains for 2018 were erased on Tuesday, as a sell-off led by giant technology stocks continued. The renewed declines in the United States came after drops in Asia and Europe. (Hilary Swift/The New York Times)

 

 

 

 

Matt Phillips

c.2019 New York Times News Service

 

Stocks tumbled Monday, accelerating a recent downturn fueled by investors beginning to factor a worsening trade war into the outlook for an already slowing global economy.

 

Sharp drops on Wall Street and in European markets came after China’s finance ministry said that starting June 1, it would raise tariffs on a wide range of U.S. goods to 20% or 25% from the current 10%.

 

The move, announced just before the start of trading in the United States, was a response to the Trump administration’s pledge to increase its own levies on Chinese products, and the reaction in financial markets was swift.

 

The S&P 500 fell more than 2% soon after trading began in New York, and declines in Europe steepened.

 

After dropping 2.2% last week, the benchmark index is down more than 4% this month.

 

Shares of companies particularly dependent on trade with China, including semiconductor makers that rely on production networks in the country, fared badly. Apple, which counts China as a major market for the sale of its iPhone and other devices and leans heavily on Chinese suppliers to produce them, fell more than 4%.

 

Boeing, one of the largest exporters in the United States, dropped more than 3%. Wynn Resorts, which is heavily reliant on casino operations in Macao that cater to gamblers from mainland China, fell about 6%.

 

As stocks have wobbled over the past week, some analysts have argued that a decline was long overdue for a market that soared to a record high in the first four months of the year. There was a shift after President Donald Trump dashed hopes that a trade deal between the world’s two largest economies was near. On Friday, Trump raised tariffs on $200 billion worth of Chinese-made goods.

 

But signs of economic anxiety also appeared in other financial markets Monday. The price of Treasury bonds rose, as investors sought the safety of government securities. Prices for soybeans and copper, both of which are sensitive to global growth and trade, dropped. Interest rates rose in corporate bond markets, an indication that investors were seeking higher premiums in response to the increased economic risks of a worsening trade fight.

 

“This would essentially be another thorn in the global economy’s side,” said Gregory Daco, chief U.S. economist at consulting firm Oxford Economics.

 

Although the global economy continues to expand, the pace of growth in has slowed in recent months in much of the world. On April 9, the International Monetary Fund reduced its growth forecast for 2019 to 3.3%, which would be among the slowest annual paces in the past decade. In adjusting its forecast, the fund cited, in part, the tensions between China and the United States. It also said it expected about 70% of the global economy to slow this year.

 

Stocks in Europe added to earlier losses in afternoon trade Monday, with the CAC 40 index in France and the Dax in Germany down by more than 1%.

 

In Asia, where trading ended before Beijing’s tariff announcement, the Shanghai Composite Index fell 1.2%, and the Shenzhen Composite Index fell 1.1%. In South Korea, the Kospi index fell 1.4%, Taiwan’s Taiex index fell by a similar amount, and Japan’s Nikkei 225 index lost 0.7%.