Looming trade war troubles China
China’s stock took a massive blow on Tuesday after President Trump amidst fear of a trade war with the United States. Over a thousand stocks fell by more than 10%, and the Shanghai Composite Index dropped below 3,000 – its lowest point since 2016.
Following confirmation of President Trump’s announcement that the US will impose tariffs on $50 billion worth of China’s goods, China announced that it would impose its own tariffs on the same amount of US goods. After this, Trump fired back, stating that if China were to retaliate, the US would impose an additional 10% tariff on $200 billion worth of Chinese goods.
Chinese investors are apprehensive about the looming trade war between Beijing and Washington, and rightfully so. Even foreign investors have sold most of their stocks, and although prices are at all-time lows, bargain investors still want nothing to do with Chinese equity.
Additionally, even if China retreats from the potential trade war, this alone won’t fix the economy. Analysts believe that China still needs to fix its monetary policy to appease investors – the country has tightened bond trading, and corporate defaults have skyrocketed.
Hao Chong, a strategist at Bocom International Holdings Co., had this to say about the economy:
“Seeing the benchmark dropping below the 3,000 level hurts sentiment even more. Things could get a lot worse if the trade war escalates and China fights back in an unconventional way. I would advise against buying into the selloff.”
The rising discussion of a trade war is hurting both the Chinese and American economies. However, more changes may need to be made to see either economy burgeon.
Featured image via Flickr/Global Panorama