Stocks plunge on China tariffs
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North American markets closed down sharply Thursday as U.S. President Donald Trump stoked fears of rising protectionism by moving to impose China tariffs.
The U.S. trade actions include imposing restrictions on Chinese investment and tariffs on about $62 billion worth of Chinese imports, prompting China to say the country will defend its interests.
The moves add to fears of escalating trade wars and the effects they could have on the global economy, said Anish Chopra, managing director with Portfolio Management Corp.
“It’s the trend toward more protectionism in the United States. These are just opening moves. How long does it last, how far can this go, what other goods are going to get hit if they keep going along the path?,” he said.
“Globalization, opening of global trade, tends to be positive for global growth, so if you’re going down this protectionist path, it’s not a positive for global growth.”
Trade jitters sent the Toronto Stock Exchange’s S&P/TSX composite index down 275.35 points to 15,399.93 in broadbased declines led by base metals.
“The Canadian market’s also reacting to Trump’s China tariff plan. It just sets a negative tone for global growth, and so everyone’s going to get hit if tariffs rise across the world, so even Canada’s growth will slow down,” said Chopra.
U.S. declines were steeper, with industrial and technology companies heavily dependent on foreign trade especially hit.
The Dow Jones industrial average closed down 724.42 points to 23,957.89. The S&P 500 index was down 68.24 points to 2,643.69 and the Nasdaq composite index was down 178.61 points to 7,166.68.
However, there were also signs of Trump’s flexibility on tariff measures Thursday, with the administration saying that the European Union, Australia, Argentina, Brazil and South Korea will get an initial exemption from steel and aluminum tariffs as Canada and Mexico have already secured.
The tariff moves came a day after the U.S. Federal Reserve announced a rate hike and said the U.S. economy and the job market continued to improve over the last two months. The Fed expects to raise rates three times this year, although some investors think a fourth increase is possible.
Reaction to the Fed’s move had largely played out Wednesday, said Chopra, with today’s movements focused on tariffs.
The Canadian dollar closed at 77.47 cents US, up 0.30 of a US cent.
The May crude contract closed down 87 cents to US$64.30 per barrel and the May natural gas contract, which has become the new benchmark, ended down a penny at US$2.66 per mmBTU. The April gold contract closed up $5.90 to US$1,327.40 an ounce and the May copper contract was down four cents to US$3.02 a pound.
In Toronto, marijuana producer Aphria Inc. closed down 3.10 per cent, Canopy Growth Corp. down 4.29 per cent and Aurora Cannabis Inc. closed down 4.46 per cent as Canada’s Senate prepared for a critical vote on the Liberal government’s bill to legalize marijuana.
Cenovus Energy closed down 5.56 per cent after it said its oilsands operations have been operating at reduced rates.
WASHINGTON — It was U.S. President Donald Trump who announced a broad trade offensive against China on Thursday, with wideranging tariffs, an international lawsuit and investment restrictions to combat alleged theft of Americans’ intellectual property.
It was his trade czar, however, who made the most elaborate argument for them.
As stocks were sent sputtering by the prospective clash of economic titans and China promised retaliation over the plan for 25 per cent tariffs on high-tech products, Robert Lighthizer was testifying before Congress.
A self-described curmudgeon, best known for his elbows-up negotiating style on NAFTA, Lighthizer confided that his biggest fear is far removed from issues involving Canada and Mexico.
It involves America’s treasure trove of corporate research being taken by China — by its spies, by its state-backed corporate takeovers, and by forced mergers and technology transfers as the cost of doing business with Beijing.
“If you [ask me] what keeps me awake at night, that’s what keeps me awake at night,” Lighthizer told the U.S. Senate finance committee on Thursday.
The Ohio-born trade lawyer rose in the Washington ranks decades ago as a staffer on the very committee where he testified Thursday; later, in the 1980s, he became a Reagan administration staffer who negotiated limits on steel imports, which he now credits with saving parts of the American industry.
Lighthizer told colleagues their careers will be judged by how they deal with China-related challenges. And he made clear his lack of patience with Economics 101 lectures involving Adam Smith.
Anyone suggesting governments leave the market to Smith’s “invisible hand” ignores that the market is already being meddled with, he said, by countries using state power to assist favoured industries and hurt Americans.
He cited rust-belt communities now gripped by the opioid crisis. He said the threat continues: China established a policy in 2006 to dominate world solar-panel production — and within a few years the U.S. industry had disappeared.
Now the new China 2025 policy calls for dominance in 10 hightech industries including aviation, robotics and energy-efficient vehicles. “This is not our spies telling us this. They put this out,” he said.
He said the Chinese statedirected system will always be unique, and some behaviours will not change; Trump’s directive mentions hacking of companies and strict conditions on U.S. firms that want to do business in China.
But Lighthizer said the U.S. can impose costs on certain behaviours and try to mitigate their impact: “We can at least be in a position where U.S. industry isn’t wiped out. And if we don’t do that, then shame on us.”
Congressional Republicans are pushing back on the substance of Trump’s trade moves; the Democrats are primarily denouncing the style. The top Democrat on the committee told Lighthizer he was concerned about the process.
China’s initial response came today, as it announced a list of U.S. goods — including pork, apples and steel pipe — on which it might raise tariffs in the escalating trade dispute with Trump.
The Chinese Commerce Ministry called on Washington to negotiate a settlement to the conflict over higher U.S. import duties on steel and aluminum but set no deadline.
Beijing’s move appears aimed at increasing domestic pressure on Trump by making clear which exporters, especially farming areas that supported him in the 2016 election, might be hurt.
Higher American duties on aluminum and steel have little impact on China, which exports only a small amount of those products to the United States. But private-sector analysts have said Beijing would feel obligated to take action to avoid looking weak in a high-profile dispute.
The country’s top economic official, Premier Li Keqiang, earlier appealed to Washington to “act rationally” and said: “We don’t want to see a trade war.”