Major indexes in the United States were deep in negative territory in early afternoon trading on June 19. This came in the aftermath of renewed trade threats from the Trump administration against China. Shares of Boeing Co. (NYSE:BA) and Caterpillar Inc. (NYSE:CAT) were leading the losers on the Dow and were down 3.9% and 3.8%, respectively. Both companies have major interests in China.
The ongoing spat between the U.S. and China over trade accelerated early this week. Chinese leadership vowed to retaliate against $50 billion in planned tariffs on its goods. President Trump followed this up by vowing to slap an additional $200 billion in tariffs on China. This also drove down the value of the Shanghai Composite.
China and the U.S. held meetings earlier this spring ostensibly to smooth over tensions over trade. These meetings yielded no concrete resolutions. Both nations agreed to a vaguely worded communique that condemned protectionism. As we saw with the G7 meeting in Quebec, these documents have been reduced to a formality and are often contradicted by signatories in quick order.
The ratcheting up of trade tensions between the two strongest economies on earth is reason to be anxious. It is becoming increasingly unlikely that both sides will come to a compromise. A trade war has the potential to curb global growth just as central banks aimed to shrink balance sheets. Investors should watch these developments very closely and consider scaling back to a more conservative portfolio.
