Equities Sink As Trade War Intensifies On Chinese Retaliatory Tariffs

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Risk sentiment was weakened further yesterday as the trade war between the US and China ratcheted up another level. Last week, the US raised the tariffs on $200 billion of Chinese imports from 10% to 25%. China responded yesterday by announcing its own set of new tariffs. The world’s second-largest economy announced that it will raise tariffs on $60 billion worth of US goods to 25%. This increase will be effective as of June 1st.

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US Farmers Being Targeted

The new tariffs will cover roughly 5000 items of mainly a vast range of agricultural commodities. These include beef, lamb, pork, vegetables, fruit juices, cooking oil tea and coffee.

Michael Nepveux, an economist with the American Farm Bureau Federation, said that the tariffs are designed to target US farmers from “every single angle”.  Speaking with CNBC, Nepveux explained this is a “very, very challenging time for farmers right now.” He added that “we’re sitting at one of the lowest net farm incomes we’ve seen in over a decade. Farmers are having huge challenges even getting out onto the field in order to try and plant.”

Trump Trying To Win Back US Farmers

Indeed, support for Trump, which had been highest among the agricultural sector during his campaign, has fallen drastically since the start of the trade war with China in January 2018. US farmers have been hard hit and accuse Trump of neglecting their welfare as collateral in a game of political posturing with China.

In Trump’s recent Twitter comments his efforts to placate the US farming community are clear. He labeled them as “great patriot farmers” and talked about the damage done to them by China. However, it is clear that many feel that it is Trump who has caused them the most damage.

Speaking with reporters on Monday, Trump said “We’re gonna take the highest year, the biggest purchase that China has ever made with our farmers, which is about $15 billion dollars, and do something reciprocal to our farmers, so our farmers can do well”.

Missed Opportunity for US Farmers

Nepveux went on to explain the big “missed opportunity” that these tariffs will present for US farmers. This is especially true for pork producers, given that African swine flu has hit Chinese suppliers hard.

Nepveux told CNBC that “Some people are saying it could easily be 20, 30% of (China’s) pork production reduced as a result of African swine fever. “China is going to have to make up that protein somewhere, and US pork is ready to help meet it along with other animal proteins as well.”

What Next?

The market is now waiting to see what happens next. This latest round of tit for tat is not a good omen for a deal being done while the US and China are still involved in trade talks,  Earlier in the week, the US trade representative Robert Lighthizer said that legal plans were being drawn up to tariff the remaining $300 billion of Chinese goods entering the US each year. However, Trump said he hasn’t “made that decision yet”.

Technical Perspective

spx500

The sell-off in SPX500 has seen price breaking down through some key levels. Yesterday’s move took price through the 2816.15 level which was the February 2019 high. Price is currently challenging the level from the underside though for now, it is holding as resistance. While below here, the focus will be on a run down to the next major support level at 2744.13. If price can break back above 2816.16, the 2856.30 level should act as resistance.

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