US Stocks Fall After Trump Threatens Tariff Hike
US stocks fell lower on Friday after President Donald Trump threatened to raise tariffs on US imports from China, reigniting fears of a trade war that rattled global markets earlier this year.
Market Reaction
The Dow lost 550 points, or 1.2%. The broader S&P 500 fell 1.5% and the tech-heavy Nasdaq Composite fell 2.1%. Trump said in a social media post that he was considering a "massive increase" in tariffs on imports from China, adding: "It is impossible for China to ‘hold the world captive’ over rare earth exports."
Reason Behind the Threat
His latest threat follows allegations that China is imposing export controls on rare earths, slowing implementation of previous agreements to release them to US companies. That’s why Trump said he no longer sees a need to meet with President Xi at the Asia-Pacific Economic Cooperation summit in South Korea later this month.
Impact on US Stocks
US stocks hovered near record highs. Wall Street has tried in recent months to put concerns about tariffs behind it and instead focus on better-than-expected corporate earnings. The president’s post on Truth Social rattled markets, sending Wall Street’s fear gauge, the CBOE Volatility Index, up 26%.
Effect on AI and Chip Stocks
AI and chip stocks, sensitive to developments in U.S.-China trade relations, fell. Nvidia (NVDA) and Advanced Micro Devices (AMD) fell 2% and 6%, respectively. Wall Street has also been concerned about the valuations of AI and technology stocks in recent weeks, making them more vulnerable to surprises.
Economist’s Opinion
“When you have a shock like today with President Trump, they will be hit the most because they are the most at risk of a worsening economic outlook or a decline in corporate earnings due to a possible slowdown,” said José Torres, senior economist at Interactive Brokers.
Safe Havens
Gold and silver, considered safe havens amid the turmoil, rose 1.1% and 1.4%, respectively. “Trump is sparking risk-off sentiment in markets after announcing the possibility of massive tariff hikes against China,” Torres said. “Investors demand safe havens.”
Oil Prices
U.S. oil prices fell 4.5% and Brent crude fell 4.1%. Oil prices had previously traded lower in part due to ceasefire developments between Israel and Hamas.
Fear and Greed Index
CNN’s Fear and Greed Index fell from neutral to fear for the first time since May.
