RED, CHINA: U.S. STOCKS CRATER AFTER TRADE-WAR ESCALATION
Worst day of year for markets as U.S. brands China ‘currency manipulator’
NEW YORK — U.S. stocks plunged to their worst loss of the year Monday and investors around the world scrambled to sell on worries about how much President Donald Trump’s worsening trade war will damage the global economy.
China let its currency, the yuan, drop to its lowest level against the dollar in more than a decade, a move that Trump railed against as “currency manipulation.” It also halted purchases of U.S. farm products. The moves follow Trump’s tweets from last week that threatened tariffs on about $300 billion of Chinese goods, which would extend tariffs across almost all Chinese imports.
Late Monday afternoon, after Trump’s tweets, the U.S. Treasury Department labeled China a currency manipulator, a decision that marks a reversal for Treasury: In May, it had declined to sanction China for manipulating its currency.
The U.S. had not put China on the currency blacklist since 1994. The designation could pave the way for more U.S. sanctions against China.
In a statement, Treasury said it would work with the International Monetary Fund “to eliminate the unfair competitive advantage created by China’s latest actions.”
“This is an extraordinary action of hostility against a major trading partner, with little economic basis and again driven mostly by presidential whims,” said Cornell University economist Eswar Prasad.
The S&P 500 dropped 87.31 points, or 3%, to 2,844.74 for its worst loss since December. It was down as much as 3.7% in the afternoon. The Dow Jones Industrial Average lost 767.27, to 25,717.74, and the Nasdaq composite fell 278.03, to 7,726.04.
“A 3% drop in a day is very significant, and you’re seeing sizeable moves in every major foreign market,” said Rich Weiss, chief investment officer of multi-asset strategies at American Century Investments.
“I am surprised at the market’s surprise at China’s retaliation,” he said. “We started a fight, and when the opponent punches back, I’m not sure why we’re surprised.”
Investors in search of safety herded into U.S. government bonds, which sent yields plunging.
“A recession is still unlikely, but the probability of it is higher, still at less than 20%,” said Nate Thooft, head of global asset allocation at Manulife Investment Management.
Early Tuesday, China said it “will not stand idly by” and will take countermeasures if the U.S. deploys intermediate-range missiles in the Indo-Pacific region, which it plans to do within months. China’s chief arms control official Fu Cong in his remarks warned neighboring countries not to allow the U.S. to deploy intermediate-range missiles on their territory.