Dow plunges 800 points
White House intensifies confusion and fear on U.S.-China trade deal
WASHINGTON» The Trump administration raised doubts Tuesday about the substance of a U.S.-China trade cease-fire, contributing to a broad stock market plunge and intensifying fears of a global economic slowdown.
Investors had initially welcomed the truce that the administration said was reached over the weekend in Buenos Aires, Argentina, between Presidents Donald Trump and Xi Jingping — and sent stocks up Monday. But on Tuesday, after a series of confusing and conflicting words from Trump and some senior officials, stocks tumbled, with the Dow Jones shedding about 800 points, or 3.1 percent.
White House aides have struggled to explain the details of what the two countries actually agreed on. And China has not confirmed that it made most of the concessions that the Trump administration has claimed.
“The sense is that there’s less and less agreement between the two sides about what actually took place,” said Willie Delwiche, an investment strategist at Baird. “There was a rally in the expectation that something had happened. The problem is that something turned out to be nothing.”
Other concerns contributed to the stock sell-off, including falling long-term bond yields. Those lower rates suggested that investors expect the U.S. economy to slow, along with global growth, and possibly fall into recession in the coming year or two.
The bond market between two-year and 10-year Treasurys reached its narrowest difference since 2007. The 10-year yield is
still higher, but not by much.
John Williams, president of the Federal Reserve Bank of New York, also unnerved investors by telling reporters Tuesday that he supports further Fed rate hikes. His remarks renewed fears that the Fed may miscalculate and raise rates so high or so fast as to depress growth.
The disarray surrounding the China deal coincides with a global economy that faces other challenges: Britain is struggling to negotiate its exit from the European Union. Italy’s government is seeking to spend and borrow more, which could elevate interest rates and stifle growth.
And in the United States, home sales have fallen sharply in the past year as mortgage rates have jumped.
Trump and White House aides have promoted the apparent U.S.-China agreement in Buenos Aires as a historic breakthrough that would ease trade tensions and potentially reduce tariffs. They announced that China had agreed to buy many more American products and to negotiate over the administration’s assertions that Beijing steals American technology. But by Tuesday morning, Trump was renewing his tariff threats in a series of tweets.
“President Xi and I want this deal to happen, and it probably will,” Trump tweeted. “But if not remember, I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.”
Trump added that a 90day timetable for negotiators to reach a deeper agreement had begun and that his aides would see “whether or not a REAL deal with China is actually possible.”
He revisited the issue later Tuesday with a tweet that said: “We are either going to have a REAL DEAL with China, or no deal at all — at which point we will be charging major Tariffs against Chinese product being shipped into the United States. Ultimately, I believe, we will be making a deal — either now or into the future. China does not want Tariffs!”
The president’s words had the effect of making the weekend agreement, already a vague and uncertain one, seem even less likely to produce a long-lasting trade accord.
“We expect the relationship between the world’s two largest economies to remain contentious,” Moody’s Investors Service said in a report. “Narrow agreements and modest concessions in their ongoing trade dispute will not bridge the wide gulf in their respective economic, political and strategic interests.”
Among the conflicting assertions that White House officials made was over whether China had actually agreed to drop its 40 percent tariffs on U.S. autos.
In addition, Treasury Secretary Steven Mnuchin said Tuesday on the Fox Business Network that China agreed to buy $1.2 trillion of U.S. products. But Mnuchin added, “If that’s real” — thereby raising some doubt — it would close the U.S. trade deficit with China, and “we have to have a negotiated agreement and have this on paper.”
Many economists have expressed skepticism that very much could be achieved to bridge the vast disagreements between the two countries in just 90 days.
“The actual amount of concrete progress made at this meeting appears to have been quite limited,” Alec Phillips and other economists at Goldman Sachs wrote in a research note.
During the talks in Buenos Aires, Trump agreed to de- lay a scheduled escalation in U.S. tariffs on many Chinese goods — from 10 percent to 25 percent — that had been set to take effect Jan. 1. In- stead, the two sides are to negotiate over U.S. complaints about China’s trade practices, notably that it has used predatory tactics to try to achieve supremacy in technology. These practices, according to the administration and outside analysts, include stealing intellectual property and forcing companies to turn over technology to gain access to China’s market.
In return for the postponement in the higher U.S. tariffs, the White House said China had agreed to step up its purchases of U.S. farm, energy and industrial goods.