Published: Sat, March 24, 2018
Finance | By Kristine Clayton

Stocks plunge on trade tensions with China; Dow drops almost 3%

Stocks plunge on trade tensions with China; Dow drops almost 3%

Wall Street fears the new USA tariffs will spur retaliation from China and hinder global economic growth.

Trump took the first steps toward imposing tariffs on US$50 billion (NZ$69 billion) in Chinese goods and limiting China's ability to invest in the United States technology industry Thursday, saying the moves were a response to Beijing's history of forcing USA companies to surrender their trade secrets to do business in China.

At a news conference, Mr Trump confirmed additional sanctions against Beijing were being prepared for the alleged theft of USA technology across a wide range of goods and services - from software to fake Ralph Lauren polo shirts. A more complete list is due soon, to be followed by a 30-day comment period.

The sanctions Mr Trump proposed on Thursday could affect as much as $60 billion in imports and are a response to allegations Beijing steals or forces foreign companies to hand over technology.

USA treasury prices gained as investors sought out safe havens.

North American markets closed significantly lower on Friday, failing to bounce back from steep losses this week as concerns about the start of a potential global trade war between the world's two biggest economies intensified selling in the final hour of trading.

The losses were especially acute for companies like Boeing and Caterpillar that export a lot of products overseas. At its intraday low of 23,938.74, the gauge was down 10.06 per cent from that January level, briefly putting it in correction territory again. They were down 2.5 and 2.4 percent respectively Thursday.

Markets have been shaky for several weeks since the president announced a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. Still, Donisanu said that after last year's rally, investors are looking for new reasons to feel optimistic about stocks.

The Russell 2000 index of smaller-company stocks sank 33.79 points, or 2.2 per cent, to 1,510.08, but it's flat this month while the S&P 500 is down 4.6 per cent. Johnson & Johnson fell $2.09, or 1.6 percent, to $129.10 and Amgen declined $3.49, or 1.9 percent, to $178.10.

On the Nasdaq, chipmaker Micron Technology fell more than 7% after reporting late Thursday a 213% earnings-per-share gain and a 58% rise in revenue, easily topping analyst targets.

Investors also sold some of the market's biggest recent winners. Caterpillar, Boeing, 3M and JP Morgan Chase were among the big drags on the Dow as trade worries deepened.

However, the tariffs will only be implemented after a consultation window that allows China to respond.

"There could be a possibility of a bounce back if, as this progresses, both sides look like they're negotiating", said Lisa Erickson, chief investment officer at U.S. Bank Wealth Management.

Earlier this month the Trump administration ordered tariffs on imported steel and aluminum, and stocks dropped as investors anxious about the possibility of tougher restrictions on global trade and smaller profits for corporations.

Their fears eased when the administration said some countries will be exempt from the tariffs. China has already hit back, unveiling its own levies on $3 billion of USA imports.

Investors bought government bonds, sending yields lower.

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