China To Raise Import Tariffs On $75B Additional US Goods

U.S. stocks turned lower on Friday after China threatened to once again retaliate to new U.S. tariffs with its own set of tariffs on U.S. imports. Both the U.S. and China are now poised to implement new trade war tariffs starting on Sept. 1.

What Happened

On Friday, China said it will implement new tariffs of between 5% and 10% on $75 billion in U.S. goods, including agricultural products, crude oil and small aircraft. Some of the tariffs will go into effect on Sept. 1, while the remaining tariffs will begin on Dec. 15.

China also said it plans to resume its 25% duties on American automobiles and 5% tariffs on auto parts on Dec. 15. China previously halted those auto tariffs back in April as part of a trade war truce.

Why It’s Important

The latest retaliation from China comes after U.S. President Donald Trump said the U.S. will once again ramp up his trade war with China by implementing a 10% tariff on an additional $300 billion of Chinese goods in two tiers starting on Sept. 1 and Dec. 15.

“The Chinese side hopes that the US will continue to follow the consensus of the Osaka meeting, return to the correct track of consultation and resolve differences, and work hard with China to end the goal of ending economic and trade frictions,” The Chinese State Council said on Friday.

China first responded to the new tariffs by halted all purchases of U.S. agricultural products and allowing the yuan to devalue to above the 7-per-dollar level for the first time in more than 10 years. A weaker yuan versus the dollar makes it cheaper for U.S. companies to purchase Chinese goods, undermining Trump’s import tariffs.

What’s Next

The trade war has S&P 500 earnings set to decline in the second quarter for the second consecutive quarter. Investors are certainly watching trade tensions closely. In the past month, the SPDR S&P 500 ETF Trust SPY and the SPDR Dow Jones Industrial Average ETF DIA are down 2.3% and 3.8%, respectively. The iShares FTSE/Xinhua China 25 Index FXI is down 7.5%.

Traders will be watching to see how Trump responds to the latest retaliations in anticipation of the next meeting between Chinese and American trade negotiators in September.

On Friday, traders will be watching U.S. Federal Reserve chair Jerome Powell’s speech at 10 a.m. ET for updates on the U.S. economy, potential commentary on the impact of the trade war and any hints about whether or not another interest rate cut is on the way next month.

Now the Fed can show their stuff!

— Donald J. Trump (@realDonaldTrump) August 23, 2019

Related Links:

Labor Department's 500K Downward Jobs Revision Puts More Pressure On Fed

Fed Minutes: Trade War Could Have 'Significant Negative Effects' On US Economy