Stock futures pointed to sharp losses on Monday after China said it would raise tariffs on $60 billion in goods from the U.S. in retaliation for the recent hike in duties on Chinese goods.
Beijing will increase the tariffs to 25 percent from 10 percent on June 1, the Chinese Finance Ministry said Monday. The action raises the stakes in a widening trade conflict that has rattled investors and threatened to damage the global economy.
Dow Jones Industrial Average futures indicated a drop of about 450 points at the open. S&P 500 futures pointed to a loss of 1.5 percent, while Nasdaq 100 futures indicated a drop of 2 percent.
Trade bellwethers Caterpillar and Boeing fell more than 1 percent each, while Apple dropped more than 2.5 percent.
Trump tweeted on Monday that China will be “hurt very badly if you don’t make a trade deal, ” noting that companies would be forced to leave the country without an agreement. Trump also said that China had a “great deal” almost completed but they “backed out.”
Trump said on Saturday that China should act now to make an agreement — or it would risk facing a worse deal if negotiations continue into a possible second term after the 2020 presidential election.
The president claimed China was “beaten so badly” in recent trade negotiations that Beijing wanted to wait until after the 2020 election in the hope a Democrat would win the White House and offer them a better deal.
Trump also tweeted on Monday that China has “taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job). Therefore, China should not retaliate-will only get worse!”
Despite the tension between the world’s two largest economies, White House economic adviser Larry Kudlow said Sunday that Trump and Chinese President Xi Jinping are likely to meet at the June G-20 summit in Japan. Kudlow said the chances of such as meeting “were pretty good” but added that there are “no concrete, definite plans” for when U.S. and Chinese negotiators will meet again.
U.S. equities fell sharply last week after Trump threatened to hike tariffs on China. Trump followed through on his threat, raising levies from 10 percent to 25 percent on $200 billion worth of Chinese goods.
Although some of those losses were mitigated on Friday after stocks staged a massive comeback. That positive sentiment was boosted by the U.S. president saying in a Friday afternoon Twitter post that the latest round of trade talks with China’s delegation — which concluded after tariffs had already been increased — had been “candid and constructive.”
“No one wins from a trade war, although China stands to lose more,” said Chen Zhao, chief global strategist at Alpine Macro. “The odds of a China-U.S. trade accord remain significant, even though tariffs are being raised,” he added.