DOW Jones Index Tumbles on Trade Tensions

Tuesday, May 29, was an incredibly volatile day on Wall Street. The Dow Jones Industrial Average dropped more than 392 points. This precipitous drop was caused by two main factors: political issues roiling Italy and the ongoing trade war between the United States and China that has been largely stoked by current US President Donald Trump.

 

The Dow dropped 1.6 percent or 292 points on Tuesday. In addition, the S&P 500 and Nasdaq both suffered significant losses by the close of trading on Tuesday. There are a number of different factors impacting markets and leading to this new volatility.

 

The most current threat to the economic order is the fact that Italy will be holding elections soon. The populist party in Italy is seen as hostile to EU projects which could mean massive problems with governing the body. Outside investors are worried about Italian debt and are currently hiking interest rates for the Italian government.

 

While these issues started in Italy and Europe they spread to the US almost immediately. One major worry of Wall Street is that Italy will eventually leave the European Union. Since Italy is currently the third biggest economy in the EU this would be a catastrophic blow for the continent-wide program. At one point Italy leaving the Euro seemed like a fantasy, but Brexit has financial markets across the globe worried.

 

Another major source of worry for markets is the fact that the administration of President Donald Trump announced new 25% tariffs on 50+ billion dollars worth of goods coming from China. This goes against statements made by his treasury secretary earlier in the month that the trade war with China was “put on hold”.

White House Extends Tariffs on Mexico, Canada, and EU

The deadline for the relief initiative on the tariffs on foreign steel and aluminum is Friday and United States President Donald Trump announced that he would not be extending the waiver on these tariffs.

 

At midnight Thursdays, the exemption will expire and Mexico, Canada, and the European Union (EU) will all be hit with stiff trade penalties. According to a statement by Commerce Secretary Wilbur Ross, the US will begin assessing tariffs of 25 percent on imported steel and 10 percent on imported aluminum.

 

Both Mexico and the EU wasted no time in saying that they would respond with penalties of their own against the US. Mexico said they would retaliate with tariffs against American pork, cheese, fruit, lamps, and flat steel. The EU did not announce specific products yet but did say that they explore the issue. Canada has not announced retaliatory efforts, however, Prime Minister Justin Trudeau has scheduled a press conference later on Thursday to discuss the plan.

 

By imposing tariffs on Canada and Mexico, two of the biggest trade partners of the US, negotiations regarding NAFTA could be negatively impacted.

 

Financial experts worry that the decision to impose these tariffs will raise everyday prices on a variety of products for American consumers. The decision also comes at an inopportune time, as the US is already engaging in an escalating trade dispute with China. On Tuesday, the White House announced that it was continuing its plan to impose tariffs totaling more than $50 billion on Chinese imports.

Chinese Trade Talks Amidst Revelation of Trump Business Stake

As the United States and China are embroiled in ongoing tension-filled trade talks, the Trump Organization is currently involved in an Indonesian deal with ties to a Chinese developer, raising concerns over conflicts of interest and ethical issues.

 

The Chinese state-owned and operated construction company, MCC Group, announced last week that it will be developing a new theme park and resort in Lido, Indonesia. The theme park is just a small component of a bigger project with ties to the Trump Organization. The broader MNC Lido City has existing licensing agreements with the Trump Organization, based on an agreement inked in 2015. The partnership specifies that Trump can put his name on the luxury resort and golf course. Although Trump has officially separated himself from the operation of the Trump Organization and its day to day business, he still owns a significant stake in the company.

 

The news of this association comes on the heels of more drama in the ongoing trade talk between the world’s two largest economies. On Sunday, President Trump tweeted his support to Chinese President Xi Jinping and the Chinese state-controlled phone manufacturer ZTE, stating his intent to help the company get back on its feet by offering help from the US Department of Commerce. Chinese Vice Premier Liu He is in D.C. this week to meet with Trump about the threat of sanctions on both sides of the battle. The two are scheduled to talk on Thursday.