China’s three billion dollar response to U.S. tariffs is the realization of the tit-for-tat trade wars that investors have been fearing. The EU winning an exclusion from U.S. steel and aluminium tariffs would have provided more relief were it not for another terrorist attack in France that dampened sentiment.
The trade war looks increasingly like a heavyweight fight between two largest economies, the US and China. That could leave Europe off the hook for some of the worst consequences.
After plummeting in early trading, stocks mostly recovered in the afternoon as investors came to realise China’s tariff response could have been a lot more severe. Three billion dollars is a splash of the ocean of US/China trade. If your glass is half-full, China’s measured response opens the door to negotiations. If you glass is half-empty, it opens the door escalation.
Even if trade war fears die down, US political risk looks like it will remain on the table. Trump doubled down on hiring foreign policy hawk John Bolton, an advocate of ripping up the Iran deal and a pre-emptive strike on North Korea by threatening a government shutdown over the funding of his border wall.
Dissatisfaction at Facebook (NASDAQ:FB) CEO Mark Zuckerberg’s response to the Cambridge Analytica scandal is holding back the rebound in US tech stocks. For those looking for reasons to buy the FAANG dip, from a trade war standpoint, most of them are blocked in China anyway.