There’s chance China might adopt hard-line approach targeting Dow Jones index giants
Will the US stock market be immune to an escalation of trade friction between China and the US? The answer is probably not. Now the question US President Donald Trump needs to think about is how he can ease investors’ concerns if growing trade tension with China hurts some US stocks.
The Dow Jones Industrial Average posted its sixth straight loss Tuesday after Trump’s latest threat to China renewed concerns over a trade war between the world’s two largest economies. Shares of US aviation giant Boeing fell 3.8 percent on Tuesday, while US construction equipment maker Caterpillar’s shares dropped 3.6 percent. But things may get worse, as bad news about the trade dispute emerges.
China does not want a trade war, but if Chinese companies suffer great losses due to Trump’s protectionist trade policies, China will have no choice but to fight back in a bid to safeguard the interests of Chinese investors.
The 30 companies that make up the Dow Jones average may be some of the first to bear the brunt of China’s countermeasures.
Some Dow Jones giants including Apple Inc generate significant portions of their sales in China. Even before China takes countermeasures, Apple Inc has already been under huge pressure.
Peter Navarro, a top trade adviser to Trump, was quoted by the South China Morning Post as saying Wednesday that he’s unaware of any tariff exemption for Apple Inc’s iPhone in the growing trade dispute with China.
If Trump continues to escalate trade tensions with China, we cannot rule out the possibility that China will strike back by adopting a hard-line approach targeting Dow Jones index giants. China is in full combat mode and prepared to strongly respond to any probable threat or economic assault from Trump.
Despite taking steps in selfdefense, China will not deviate from its route of deepening reform and opening-up. Beijing will further open up China’s financial markets to the world, a move that may draw funds from US stock markets as global investors increasingly add Chinese stocks to their portfolios. Those measures may further knock down US stock prices.
A trade war is actually a double-edged sword. If Chinese companies suffer, Dow Jones giants may soon find themselves in the crosshairs of the trade battle. The Trump administration is less able to endure an all-out trade war due to the influence of lobbies on US policy.