The Trade War Isn’t The Only Reason For The Dow’s Big Drop

Last week, President Trump threatened to place a 10 percent tariff on $300 billion worth of Chinese imports on September 1 unless trade talks with China showed more sign of progress. Already, America has tariffed $250 billion of Chinese imports at 25 percent, and if tariffs are placed on the $300 billion basket of goods, this would increase tariffs on all Chinese imports to the United States.

President Trump is unhappy that talks last week in Beijing between Chinese officials and U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin broke down. He’s also unhappy that China hasn’t followed through on a promise to purchase more U.S. agriculture goods, like soybeans, in exchange for the United States allowing our chipmakers (think Intel and Qualcomm) to supply chips to Huawei, a Chinese telecommunications giant.

There are risks to the president’s strategy. While the trade war has yet to significantly affect U.S. consumers, global business sentiment has been negatively affected as global supply chains have been upended, and the $300 billion basket of goods to potentially be tariffed next month is much more consumer-oriented than the $250 billion basket already tariffed.

China can also attempt to retaliate, even though its ability to do so is limited because it doesn’t buy that many American goods. And even China’s tariffs on U.S. agriculture are more complicated than the media would have you believe. For example, China restricted U.S. pork imports since 2011 by spuriously claiming U.S. pork is unsafe.

And because African swine fever (ASF) is wiping out China’s pig population, and pigs eat soybean meal, China is demanding less soybeans generally, even from Brazil.