Stocks plunge on Donald Trump's China trade tariffs threat

By Aimee Picchi

/ MoneyWatch

Stocks tumbled Monday after President Donald Trump threatened to raise tariffs on $200 billion worth of Chinese goods. The development comes amid ongoing trade talks between the U.S. and China. Goldman Sachs noted that Mr. Trump's action suggests the U.S. has reached a "sticking point" in negotiations.

The Dow fell more than 350 points, or 1.3%, in the first 10 minutes of trading Monday. Other indices also dropped, including the S&P 500 and the tech-heavy Nasdaq composite, where companies like Apple, Qualcomm and Broadcom, which rely heavily on Chinese business, took especially big hits, falling more than 3% each in early trading. According to data provider FactSet, 64.7% of Qualcomm's revenue comes from China. Broadcom's Chinese revenue is 48% of its total and Apple gets nearly one-fifth of its revenue from world's second largest economy.

Mr. Trump on Sunday signaled his discontent with what he described as slow progress on trade negotiations with China, writing on Twitter that he planned to boost tariffs on Friday from 10 percent to 25 percent on the Chinese imports. He also said he would impose tariffs on $325 billion worth of products from China, accounting for all of its exports.

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While the threat is likely a negotiating ploy — Mr. Trump may be "emboldened by the strength of the U.S. economy, and firm U.S. equities" — it startled investors because of earlier reports of progress between the two sides, said TD Securities analyst Mitul Kotecha in an analyst note.

"We had thought that a trade deal between the US and China was close to being agreed and markets had become rather sanguine about the issues," Kotecha wrote. "Indeed headlines over recent weeks had been encouraging, with both sides sounding conciliatory, and progress noted even on structural issues."

"We lose 500 billion dollars"

Mr. Trump, who has called himself "tariff man," complained on Twitter on Monday morning that the U.S. loses "500 Billion Dollars" a year in trade with China. "Sorry, we're not going to be doing that anymore!" he tweeted.

The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we’re not going to be doing that anymore!

— Donald J. Trump (@realDonaldTrump) May 6, 2019

Chinese envoys said they're still preparing to travel to the U.S. for trade talks, a government spokesman said Monday, suggesting negotiations on ending a bruising tariff war will go ahead despite the president's surprise threat to raise import taxes. Beijing is "trying to get more information" following Mr. Trump's announcement he might impose 25 percent tariffs on more Chinese imports, said the Foreign Ministry spokesman Geng Shuang.

Tariff odds

Wall Street analysts said they view the sudden threat to boost tariffs as a negotiating ploy, suggesting that the Trump administration has grown frustrated with the time it's taking to reach a deal. While the threats lower the chances that the talks will conclude successfully, Goldman Sachs analysts Alec Phillips and Blake Taylor wrote in a research note they believe it's still more likely that Mr. Trump won't follow through on his threat.

"We think it is more likely that the increase will be narrowly avoided and believe the odds of tariffs increasing on Friday are 40 percent," they wrote.

Still, the chances of a successful trade deal appear lower today than last week, they added: "This represents a shift from the optimistic statements from U.S. officials over the last few weeks and suggests that the probability of a near-term agreement is at least slightly lower than it seemed to be recently."

–With reporting from The Associated Press.

First published on May 6, 2019 / 9:01 AM

© 2019 CBS Interactive Inc.. All Rights Reserved.

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