Dow Jones down nearly 3% amid fears of new trade war

If the tariffs and counter-tariffs reduce economic growth in the US, the Fed is likely to raise rates at a slower pace.

Saying it would be the “first of many” trade actions, Trump signed a presidential order to retaliate for China’s “theft” of American intellectual property. The Dow ended Thursday down 722 points, a 2.9 percent drop, and briefly fell into correction territory. On Feb. 5, the Dow dropped 1,175, the worst of all time.

All three major indexes took their biggest weekly tumbles since January 2016.

On Thursday, markets sank.

“If the Trump administration really wanted to hurt China and start a trade war, then they would go after those larger sectors”, he said. “We don’t know the next shoe to drop on trade”, said Michael Block, chief strategist at Rhino Trading Partners. That was, however, before the Trump administration imposed further tariffs on up to US$60 billion of Chinese imports, which in turn saw China respond with $3bn of its own tariffs on 128 United States products.

Big U.S. companies tend to get more of their revenue from foreign customers than small companies do, and that makes them more vulnerable to damage from a trade war.

Fed chair Jerome Powell was of course asked about the potential for a trade war and the impact this might have on the Fed’s forecasts, but while he acknowledged the risks of retaliation to recent USA trade measures, he did not see these yet affecting the economic outlook.

Earlier this month, Trump ordered tariffs on imported steel and aluminum, and stocks dropped as investors anxious about the possibility of tougher restrictions on global trade and smaller profits for corporations. Hong Kong’s Hang Seng lost 2.5 percent.

Investor unease extended to the response from China, which urged the United States to “pull back from the brink”, and unveiled its own plans to impose tariffs on up to $3 billion of USA imports.

Investors have anxious about rising trade tensions after the administration announced tariffs on imported steel and aluminum. But Trump has been unique in the extent to which he has taken credit for the performance of the stock market past year. On Friday chipmakers fared especially badly. “The stock market is way up”.

“I think the stock market’s gonna be great”, he said. The Dow is now down 10% from its recent peak.

The worry is that a tit-for-tat escalation between the two largest economies in the world will ruin the solid economic backdrop. A major slowdown in trade could darken the otherwise bright economic outlook.

The spending plan caps a week that saw indices weighed down by more concerns about a brewing trade war and losses in tech shares after Facebook ( FB ) came under fire.

Equities have been under pressure recently as the Trump administration ramps up a protectionist trade agenda. “There’s a decent chance of that, but it’s too early to tell”.

Wall Street fears the new USA tariffs will spur retaliation from China and hinder global economic growth.

“In short, markets will be more affected than the economy”, he said. “So the fundamentals of our economy remain strong”.