China-US Trade Spat Is Bad News for Stock Markets
President Trump late last week slapped $50 billion worth of Chinese imports with a new 25 percent tariff. While the tariff had been long discussed, negotiations with the Chinese government in recent weeks seemed to have indicated a softening of Trump’s position towards China. That was particularly the case with Trump’s attempts to find a solution to keep troubled Chinese semiconductor and telecommunications firm ZTE in business. News of the tariff therefore came as an unwelcome surprise.
Despite Trump’s Chinese tariff plan being announced on a Friday, China immediately retaliated by announcing a similarly large tariff on US imports. Trump’s tariff plan is intended to affect 818 different Chinese products and is to go into effect on July 6. The Chinese retaliation will target numerous American commodities, including beef, soybeans, and even oil.
US oil exports to China have risen in recent years as the US oil industry has boosted output to record highs. And with OPEC continuing its production cuts, China had increasingly turned to the US as a source for oil. Tariffs on imports of oil from the United States won’t just harm US producers, but also Chinese businesses and consumers that depend on that oil.
The prospect of continued tit-for-tat tariff action, and the seeming unpredictability of when they will be announced, has markets spooked. Just when it seemed that tensions were starting to ease and the Dow Jones was starting to move back above 25,000 points, along come renewed fears of a worldwide trade war. The Dow was down over 200 points in early trading to start the week, meaning that stock market investors are facing almost a week of consecutive losses. Every time markets start to rally, something seems to pop up to knock them back down.
But the failure of stock markets to regain their all-time highs is a boon for gold. While markets overall are in a wait-and-see stance right now, any future shocks to stock markets will result in gold’s price rising. More and more investors are moving into gold, both to protect their existing assets against a stock market collapse as well as to continue making gains in the future. Gold gained 13% last year and, since the beginning of the century, has more than doubled the gains of stock markets. That makes it an ideal asset for investors looking to protect their wealth in the face of a looming stock market correction.