Markets resume declines as Trump pursues trade war with China

(Originally published April 11 in “What in the World“) Trump’s trade war with China has intensified fears of recession.

The S&P500 fell almost 3.5% Thursday. It has fallen more than 12% since Trump’s inauguration.

The White House clarified that U.S. tariffs on goods imported from China, America’s second-largest source of imports, now stand at 145%. Apparently the early figure of 125% didn’t include the 20% tariff Trump imposed to punish China for its role in U.S. imports of fentanyl. China has retaliated by raising its tariffs on imports from the U.S., its largest source of imports, to 84%. The European Union, however, suspended its 25% retaliatory tariffs on U.S. goods after Trump on Wednesday announced a 90-day pause in his “reciprocal” tariffs.

While the White House believes China’s dependence on the U.S. for its exports gives the U.S. the upper hand, the reverse may be true if tariffs make essential minerals and components unaffordable for U.S. companies. While the U.S. exported $143.5 billion in goods to China last year, it imported $438.9 billion worth. The third-largest U.S. export to China is its $13.35 billion in agricultural exports, a category dominated by its $12.76 billion in soybean exports. So American soybean farmers are understandably worried about the impact of the trade war.

Higher volatility and rising fears of stagflation are hurting demand for riskier debt. Investors pulled a record $9.6 billion from U.S. high-yield bond funds in the last week. They withdrew $6.5 billion from leveraged loan funds, a week after leveraged ETFs lost $25.7 billion in value.