Stock market volatility sign that Washington off course

US stocks closed sharply lower on Wednesday, with major indices posting slumps of at least 2 percent, triggering widespread sell-offs in other parts of the world. While analysts said the mixed corporate earnings performances and other factors, such as geopolitical tensions, are behind the nosedive, there was general agreement that the dampened sentiment was the fallout from the ongoing trade disputes the United States has initiated with its major trade partners.

The Dow Jones Industrial Average lost 2.4 percent, or more than 600 points while the Nasdaq Composite Index plummeted 4.4 percent, its worst day since 2011. The US stock indices have obviously trended down this month after climbing to almost 27,000, making analysts predict worse to come.

Admittedly, technical factors can partially explain the recent losses in the US stock market. The US stock indices have risen uninterruptedly for nearly 10 years and with their stock prices soaring, US companies’ price-earnings ratios have risen to very high levels. Moreover, economists are widely expecting the world’s largest economy to start weakening from next year or 2020.

A major stock market correction would therefore not be surprising. Still, that should not negate the fact that investors have expressed their concerns over the uncertainties caused by the trade confrontations resulting from the hard-line trade policies of the US government.

These echo those of the US Federal Reserve, which admitted in a report that firms nationwide are worried about the serious impact of the US administration’s tariff policies.

This was in line with an earlier IMF report that stated the trade conflicts among major players would be a drag on global trade activities and economic growth, and threatened to fracture global supply chains.

The recent deep corrections in the US stock indices show that investors are in agreement that Washington’s stance is jeopardizing the global trade system.

The stock market falls should serve as a signal to Washington that if the global economy as a whole worsens, the US economy will not go unscathed and its beggar-thy-neighbor trade policy will only backfire.

Instead of sticking to their adventurist game, US policymakers should reassess their trade strategy, and adopt a more reasonable stance. At best its self-serving trade tactics will only produce temporary gains, over the long run as investors are predicting they are likely to batter the US.