Trump’s Threats To Raise Tariffs On China Send Markets Falling

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Updated at 4:07 p.m. ET

President Trump's latest threat to set higher tariffs on imports from China is raising new fears about the ongoing trade talks with Beijing and sending global financial markets tumbling.

Stock prices opened sharply lower in the United States on Monday — with the Dow Jones Industrial Average down more than 450 points — after Trump tweeted a vow Sunday to raise tariffs from 10% to 25% on $200 billion worth of imported Chinese goods as of Friday. The stocks of companies that trade heavily with China were especially hard hit.

Earlier Monday, the Shanghai composite index plunged 5.6%.

"The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars. Sorry, we're not going to be doing that anymore!" Trump said in a tweet Monday. (The goods trade deficit with China rose to a record $419.2 billion in 2018, but most economists say a deficit doesn't say much about the health of the economy.)

But the stock markets crept higher as the day wore on, a sign that investors may be seeing Trump's threat as a negotiating ploy that he is unlikely to follow through on. By the end of the day, the Dow was down only 66 points, or 0.25%.

China and the United States have been locked in tough talks for months about trade, with the Trump administration demanding that Beijing address intellectual property theft, government business subsidies and currency manipulation.

A delegation of top Chinese officials is scheduled to come to Washington on Wednesday to resume negotiations, and a Chinese spokesman said Monday that there are no plans to call off the trip.

Still, Trump's tweets have "blindsided" Beijing officials, who were hoping the talks would lead to an elimination of tariffs, said Eswar Prasad, a senior professor of trade policy at Cornell University.

"But now it looks like the negotiations, at least on the U.S. side, will be about not imposing additional tariffs. So that changes the complexion of the negotiations quite significantly," Prasad said.

The Chinese still have a strong incentive to strike a deal because their economy has been slowing, he said.

"The complication right now is that the Chinese cannot afford domestically to be seen as cravenly giving in to U.S. demands, which in the Chinese narrative are multiplying by the day," Prasad added.

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