Here we go again. The threat of a U.S.-China trade war is back, but this time it comes with some fresh complications.
President Donald Trump jolted the market out of its complacency Friday by threatening a 100% additional tariff on
imported Chinese goods in apparent retaliation to Beijing’s restrictions on rare-earth exports. The reaction gave insight about which areas of the market look overextended—technology stocks and companies exposed to cryptocurrencies were hit hard.
But the tone was softened as soon as Sunday, when Trump wrote “it will all be fine” in a Truth Social post. That suggests a last-minute scramble for leverage ahead of the president’s potential meeting with China’s
leader Xi Jinping at a summit in South Korea at the end of the month. If the past is any guide, expect at least a temporary trade truce to still be in reach.
However, that doesn’t mean investors can relax completely. Last time trade tensions were running high, stock valuations weren’t so extended and there wasn’t an ongoing government shutdown. The stock rally is still underpinned by expectations the Federal Reserve will keep cutting interest rates, but the central bank still has to keep in mind the possibility of tariff-driven inflation while dealing with a lack of official data as the impasse in Congress drags on.
There should be more clarity coming in the next couple of weeks, though—the White House has confirmed the U.S. Bureau of Labor Statistics will
publish the inflation report for September this month. A rate cut later in October is likely already locked in but the data could have a big bearing on expectations for December.
Trump’s tariff threat showed traders were ready to rush for the exits at the first sign of trouble. If the Fed shows any signs of wavering on rate cuts, expect that to become a stampede.
—Adam Clark
***Join Barron’s senior managing editors Lauren R. Rublin and Ben Levisohn today at noon when they meet with Jonathan
Boyar, a principal at the Boyar Value Group, for a discussion about the stock market outlook and compelling investments around the world. Sign up here.
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Trump’s Latest on China Could Cause Stock Market Whiplash
After causing investors whiplash with big new tariffs on goods from China,
President Donald Trump seemed to extend an olive branch to China’s Xi Jinping on Sunday, saying in a social media post that everything would “be fine” and don’t worry about China. Stock futures jumped after Friday’s selloff.
- Trump said Sunday that the U.S. wants to help China, not hurt it. But just three days ago he announced plans to slap 100% tariffs on goods from
China, which would go on top of existing tariffs. This is after China announced export controls on rare earths.
- The higher tariffs would kick in on Nov. 1, Trump said Friday, “depending on any further actions or changes taken by China.” Vice President JD Vance said Sunday that Beijing should choose the path of reason and that the U.S. holds “more cards” than China if it responds aggressively.
- China defended its export controls on rare earth minerals as “legitimate” on Sunday. Its Ministry of Commerce said the controls aren’t bans and that licenses will be granted for eligible applications, according to a translated text of the statement.
- China’s statement on
Sunday also accused the U.S. of applying a double standard, and said willful threats of high tariffs aren’t the right way to get along with China. It added it doesn’t want a trade war but isn’t afraid of one.
What’s
Next: Wedbush analyst Dan Ives sees Trump’s latest comments as de-escalating China tensions, which weighed on the tech sector on Friday. “We believe the bark will be way worse than bite here and Trump and Xi should be meeting in the next few weeks,” he said in a note Sunday.
—Liz Moyer
Bitcoin, Other Cryptos Rebound After China Tariff Shock
Cryptocurrencies were rallying first thing Monday, paring back some of their losses after crashing following President Trump’s renewed tariff threats against China.
- Bitcoin was trading around the $115,000 mark, about 9% off the record high it hit earlier this month.
- Tokens including Bitcoin, Ether, and XRP plummeted on Friday, with Bitcoin racking up double-digit percentage losses and falling below $110,000 at one point. The selloff
came after Trump threatened to hike tariffs on China, which likely sapped investors’ appetite for risk assets.
- “Cryptocurrencies did little to stake their claim as a store of wealth last week,” Hargreaves Lansdown Head of Equity Research Derren Nathan said. “At one point, Bitcoin bottomed out more than 13% lower than the record highs it hit last week, as traders scrambled to close positions.”
- Monday’s rebound came after Trump softened
his tone on his trade war with Beijing. “Don’t worry about China, it will all be fine!” he wrote in a Truth Social post on Sunday.
What’s Next: The recent volatility of cryptos highlights the risk of investing in assets with little intrinsic value and a lighter regulatory touch, according to Hargreaves Lansdown’s Nathan. Future price catalysts also include developments in the U.S.
government shutdown, now entering its 13th day, where voting is set to resume Tuesday.
—George Glover and Elsa Ohlen
Shutdown Impasse Continues for 12th Day As Fingerpointing Continues
Democrat and Republican lawmakers on the Sunday talk shows continued blaming each other for the federal government shutdown and refusal to negotiate. Speaker Mike Johnson said the House won’t convene this week, while House Minority Leader Hakeem Jeffries announced an in-person Democratic Caucus on Tuesday.
