U.S. markets spiraled down on Monday morning after a report by The Wall Street Journal suggested that China is planning to raise tariffs on certain U.S. imports.
The report sent the Dow Jones Industrial Average lower by 437.69 points or 1.69% shortly after the opening bell. The S&P 500 fell by 48.09 points or 1.67%, while the Nasdaq Composite slipped by 169.74 points or 2.18%.
China said it would raise tariffs on roughly USD 60 Billion worth of U.S. imports in retaliation to the U.S.’s threat to increase tariffs on USD 200 Billion worth of Chinese goods.
China’s State Council said that starting on June 1st, China will raise tariffs as high as 25% on products it currently taxes at 5% to 10%. U.S. President Donald Trump decided to raise tariffs on Chinese goods from 10% to 25% last week. Furthermore, the U.S. is also expected to release details on levies on more than USD 300 Billion worth of additional goods that China sells to the U.S.
China is looking to raise tariffs on nearly 5,000 products such as animal products, frozen fruits and vegetables, and seasonings. China is also looking to raise tariffs by 20% for products such as baking condiments, chemicals, and vodka.
The tensions between the U.S. and China caused the Dow to fall by as much as 1,000 points last week. Investors and analysts seemed optimistic that the two nations would reach an agreement because of the progress they have made. However, negotiators were not able to agree on a deal, leading back to a trade war.
“China should not retaliate-will only get worse!” tweeted Trump on Monday. “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!”
Despite China’s threat to increase tariffs on certain products, the tech industry may face the most severe effects. Companies such as Apple (NASDAQ: AAPL) and other semiconductor manufacturers are expected to be pressured by the tariffs.
“The core underlying fear in the eyes of tech investors is around what this move as well as a retaliation move from the Chinese can do to the tech food chain, semi stocks (Intel, Nvidia, etc.), and clearly Apple, which heavily relies on China both on the supply (Foxconn) as well as demand front,” Wedbush analyst Dan Ives said.
“With worries that Trump potentially plans to enact additional tariffs on Chinese goods down the road if this trade situation spiral further, tech stocks are ultimately caught in the crossfire, with Apple and the semiconductor space remaining front and center and thus weighing on stocks accordingly this morning,” he added.