Brace yourselves for a trade war

By

Opinion

May 16, 2019 - 10:33 AM

President Trump often cites the stock market as proof of his economic-policy success, so let’s hope he was watching the Dow Jones Industrial Average on Monday. The Dow fell 2.38%, and the Nasdaq and Russell 2000 fell even more, on the escalating tariff dispute between the U.S. and China.

Stocks are volatile, but there’s no denying that markets are rising or falling these days in substantial part on the prospects of a U.S.-China trade deal. They fell Friday morning after Mr. Trump raised tariffs to 25% on $200 billion in Chinese exports to the U.S., then rose later that day on word that bilateral talks had been “constructive.” Equities fell again Monday when China retaliated with tariffs up to 25% on $60 billion of U.S. goods.

The Dow is now nearly 1300 points lower than it was in January 2018 when Mr. Trump began his tariff offensive — despite the best 12 months for economic growth since 2005 and healthy corporate profits. The stock market isn’t the only measure of economic health, and it can send false signals, but in this case the clear market message is that tariffs will subtract from economic growth.

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