Wall Street fell sharply on Friday as tensions between the US and China reached new heights after Donald Trump demanded American companies seek “an alternative” to China in response to Beijing’s latest volley of tariffs.
Beijing said on Friday it would apply additional levies of between 5 and 10 per cent on $75bn of US imports from September, marking the latest escalation in the tit-for-tat trade war between the two countries.
The US president responded by tweeting: “We don’t need China and, frankly, would be far better off without them.”
“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA.”
The S&P 500 sunk in response to the escalation, posting its third-worst day of the year with a drop of 2.6 per cent. In Europe, the composite Stoxx 600 index dropped 0.8 per cent, with Germany’s Dax and France’s Cac both down roughly 1.2 per cent, while in London the FTSE 100 fell 0.5 per cent.
Shares across the retail, automotive and shipping sectors weakened Friday, while tech stocks suffered some of the heaviest losses. The Nasdaq Composite shed 3 per cent. The Philadelphia semiconductor index, which tracks companies that make and distribute chips, shed 4.4 per cent. Apple shares were down 4.6 per cent.
The sell-off pushed Wall Street into the red for the fourth consecutive week. Over the past five trading days, the S&P 500 retreated 1.4 per cent, the Nasdaq Composite fell 1.8 per cent and the Dow Jones Industrial Average was down 1 per cent.
“The rhetoric matters because it impacts supply chains, it impacts capex and that’s why the markets have sold off,” said Alicia Levine, chief strategist for BNY Mellon Investment Management. “Supply chains that can move from China will move from China and they will move permanently.”
US government bond yields fell, reversing earlier gains, as traders moved into the debt, which is regarded as a safety play in times of market stress. The yield on the US 10-year note fell 8.3 basis points to trade at 1.5266 per cent. The yield on the policy sensitive two-year note dropped by the same margin to 1.5250 per cent.
Gold also gained, rising 1.9 per cent and nearing its recent six-year high.
The new Chinese tariffs were announced just ahead of a speech by US Federal Reserve chairman Jay Powell at the central bank’s annual meeting in Jackson Hole, Wyoming. In his address Mr Powell warned that fitting trade uncertainty into the central bank’s policy framework was “a new challenge”, emphasising the Fed had little ability to influence international trade negotiations.
He did not give any indication as to plans to cut interest rates, however, prompting President Trump to lash out and label him an “enemy”. “As usual, the Fed did nothing!” the president tweeted.
Additional reporting by Richard Henderson in New York
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