Stocks continue its downward trend despite ending last Friday on a positive score. Dow ended at a 0.7% drop, making it the fifth straight fall for the index, and the longest since 2011. Investors and analysts still see the ongoing trade war between the U.S. and China as the most significant contributor to this decline.
The Dow Jones Industrial Average closed with a 95.22 point rise on Friday at 25,585.69, recovering from a significant drop on Thursday. The rise came after U.S. President Donald Trump’s statement on Thursday that the trade war will end soon. While finishing the week at a positive, it was not enough to carry the week’s score back up.
Economists and investors are hoping for a trade deal between both countries as soon as possible. Heightened trade tensions between the U.S. and China will result in further market inflation and an economic drop for the country. Investors are also showing uncertainty due to the recent trade battles, reflecting in the consistent fall of stock indexes.
A possibility of an agreement could happen in this June’s G-20 summit, where both countries will make an appearance. According to former U.S. ambassador to China Max Baucus, however, the chances of this are 50-50 at best. Last year’s G-20 summit found both parties calling a 90-day ceasefire on their trade battle. The truce abruptly ended, when the U.S. government imposed tariffs on Chinese products.
U.S.-China Trade War and Its Effects
To reduce the U.S. trade deficit, the U.S. government has imposed several tariffs on several products. The tariffs are placed to provide local products with a competitive advantage over imported counterparts by making local prices lower. These include a global tax on steel, European automobiles, and products from China.
The tariffs imposed on Chinese products have taken the hardest hit so far. With a total of four tariffs to date, these caused most Chinese products in the U.S. market to raise prices. Additionally, the U.S. limited the transfer of their technology to companies in China. The U.S. government is also applying pressure to stop China’s expansion in the tech sector, which includes robotics and software.
In response, China will impose their set of tariffs on U.S. products by June 2019. They could also sell most of the debt the U.S. has with China. This action could lead to higher interest rates and a hampering the economic growth of the U.S.
China is one of the country’s long-standing business and trade partners, with most manufacturing and processing done there. Many U.S. brands, like apparel and consumer electronics, are manufactured in China. Current tensions between the countries would affect these markets, pushing the prices to rise.
The energy and technology sectors are the most significant casualties in the trade battle between the U.S. and China. Chipmakers, tech companies, and related industries are suffering substantial losses due to the high tariffs imposed by the government. Consumers are also being limited in the field of consumer electronics, as some Chinese products are pulled out from the market.