A day after the Trump administration announced 10% tariffs on an additional $200 billion in Chinese exports to the United States, stocks are up on a “It could have been worse” reaction.
At 12:30 p.m. New York time the Standard & Poor’s 500 stock index was ahead 0.64% and the Dow Jones Industrial Average was up 0.62%. The NASDAQ Composite Index had gained 0.94%.
The positive reaction wasn’t limited to U.S. markets either. Japan’s Nikkei 225 index climbed 1.41$ over night. The Shanghai Composite gained 1.82%.
Sentiment seems to have focused on the 10% tariff rate instead of a potential 25% and the restrained nature of the Chinese response–5% and 10% tariffs on just $60 billion in U.S. exports to China.
Both the U.S. and Chinese tariffs are scheduled to go into effect on September 24.
Optimism about the relative restraint of this round of tariff actions does leave the market open to a return of pessimism if the tariff war takes a turn for the worse as certainly looks possible.
President Donald Trump has warned that the United States will impose tariffs on an additional $267 billion in Chinese exports if China retaliates against U.S. farmers. With China putting 10% tariffs on U.S. exports of meat and wheat, it certainly raises the possibility that a new round of U.S. tariffs is soon to follow.
In addition Chinese officials have talked in recent days about non-tariff measures that might serve as retaliation. Restrictions on U.S. company operations in China would be one possibility. In the last few days Chinese officials have floated the idea of restrictions on the ability of U.S. companies, such as Apple (AAPL) to import components necessary to the assembly of their products in China. I doubt that the potential damage from that kind of action has been factored into financial markets at this point.
Maybe that’s why emerging markets and Apple itself have been more restrained than the market in general today. The iShares MSCI Emerging Markets ETF (EEM) was up 0.37% as of 12:30 p.m. in New York. Shares of Apple were ahead 0.51%.
