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Trump's tariffs send stock markets tumbling, with real concerns

U.S. President Donald Trump's economic stimulus promise including the already passed tax overhaul may have fueled the country's stock market rally last year, but his plan to impose steel and aluminum tariffs certainly had a huge negative impact on the equities.

On Thursday, Trump said the United States is set to impose a 25-percent tariff on steel imports and a 10-percent one on aluminum after a meeting with business executives.

The news immediately hit Wall Street sentiment, with the Dow falling as many as 586 points after rising more than 150 points in the morning session.

The S&P 500 briefly dropped below its 100-day moving average, while the Nasdaq dipped below its 50-day moving average, both of which are key technical levels.

The sell-off reflected Wall Street's concerns over inflationary risks and economic slowdown, two threats analysts predicted tariffs and other protectionist measures could bring.

"The inflationary impact is direct as domestic prices rise in response to higher prices for intermediate goods – most protectionist measures target metals, plastics, chemicals – that manufacturers pass through to consumers. Think autos, appliances and beverages," said Humberto Garcia, head of Global Asset Allocation for Bank Leumi USA.

He added that the economic impact results from a dampening effect on sales, both domestically and through exports.

This could well explain why Industrials was the worst performing sector on the S&P 500 on Thursday.

Shares of Ford Motor and General Motors tumbled more than 3 percent at the close. Boeing, Cummins and United Technologies – other users of steel and aluminum – also ended the trading day with a sharply down note.

Trump's announcement drew overwhelming objection and criticism from industries and academia.

Business Roundtable, an association of chief executive officers of America's leading companies, said it strongly disagreed with the announcement because it will hurt the U.S. economy and American companies, workers and consumers by raising prices which would lead to foreign retaliation against U.S. exporters.

"Using 'national security' tools to implement tariffs could embolden other countries to impose 'national security' tariffs on U.S. exporters or otherwise restrict U.S. goods and services sold to their markets," Joshua Bolten, president & CEO of Business Roundtable, said in a statement.

Wendy Cutler, former acting deputy U.S. trade representative, said: "The imposition of tariffs on steel and aluminum will also reverberate throughout the U.S. economy and possibly negate some of the benefits of the recent tax cuts," which is already evident in stock market decline.

"In short, this decision, which may help the U.S. steel and aluminum sectors, will wreak havoc on autos and others," said Cutler, who is now vice president at the Asia Society Policy Institute.

She said automotive, aircraft, and boat industries will be less competitive and workers in these industries may lose their jobs as costs rise and sales fall.

Many experts including Cutler fear that more protectionist moves will follow.

"This enforcement action follows recent U.S. decisions to increase tariffs on solar panels and washing machines. Don't count on it being the end of the story," said Cutler.

For Wall Street, uncertainty on the scale of U.S. protectionist policies in the future and the severity of countermeasures taken by other nations, and U.S. retreat from multilateral trade agreements bring about real fear, according to Garcia.

"With markets already jumpy about inflation, we expect volatility to continue until there emerges some clarity on the path of tariffs and other protectionist measure," said Garcia.

[Source: By Xinhua Writer Wang Wen, Xinhua, New York, 01Mar18]

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small logoThis document has been published on 05Mar18 by the Equipo Nizkor and Derechos Human Rights. In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.