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Dow Flatlines as Trump’s Trade War Chokes China’s Economy

Last Updated September 23, 2020 1:11 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:11 PM

The Dow Jones crawled toward a slight loss on Friday, but the stock market’s most closely followed index remains positioned to record its second straight weekly advance.

Trade pressures continue to weigh on the Dow, and the White House followed through on its threat to impose tariffs on $7.5 billion worth of European Union goods. Elsewhere, dismal growth data from China revealed that US tariffs are continuing to choke the world’s second-largest economy.

Dow Crawls Toward Minor Weekly Gain

Wall Street’s major indices all strolled toward a dull trading session on Friday. The Dow Jones Industrial Average declined 35.27 points or 0.13%, slipping below the 27,000 level to 26,990.61.

dow jones industrial average chart
The Dow edged lower on Friday, but the index appears to be headed toward a slight weekly gain. | Source: Yahoo Finance

Despite volatile sessions on Monday and Tuesday, the Dow has had a relatively calm week. If current levels hold, the index will close the week with gains of around 200 points from last Friday’s close.

The S&P 500 dipped 0.76 points or 0.03% to 2,997.19. Seven of 11 primary sectors reported gains, but utilities and industrials dragged the index into negative territory.

The Nasdaq ticked 5.14 points or 0.06% lower to 8,151.71.

Chinese Growth Slogs to Worst Quarter on Record

Stocks flatlined as global growth concerns heightened fears about a worldwide recession. The latest evidence comes from China, which just recorded its weakest growth figure since the government began keeping quarterly records  in 1992.

The Chinese economy grew 6% year-over-year in the third quarter, slightly below the Reuters estimate of 6.1% and at the bottom range of Beijing’s growth target.

Cited in the South China Morning Post, Nomura analysts said that, though the weakest on record, the official growth number is likely too optimistic .

“Actually we still believe the actual growth slowdown might be worse than the headline official numbers,” the Nomura analysts said.

Reacting to the miserable economic data, major Chinese stock indices, including the SSE Composite, recorded their worst declines in a month.

sse composite, chinese stock market
Chinese stock indices like the SSE Composite plunged in response to weak economic data. | Source: Yahoo Finance

The trade war isn’t the only pressure the Chinese economy faces, but it’s difficult to ignore the impact that tariffs have had on factory output and exports .

New tariffs had been scheduled to take effect this week, though President Trump delayed them indefinitely after officials outlined a partial trade agreement last week. However, a second round of tariffs slated for Dec. 15 remain on the agenda.

Oxford Economics predicts that Chinese growth will slow to 5.7% in 2020, but that’s without the impact of new tariffs. By themselves, the Dec. 15 tariffs could reduce that figure to 5.5%.

But while US tariffs appear to be taking a toll on China, analysts warn that the trade war has also exacted a price from the US economy. Tariffs have battered the manufacturing sector, and the weakness has begun to seep into the broader economy as well.

Growth in the US services sector, which accounts for around 80% of private-sector GDP, slid to a three-year low  in September. Just this week, the Commerce Department revealed that retail sales had unexpectedly fallen 0.3%  in September.

Worsening the outlook for the Dow Jones, the Federal Reserve might be nearing the end of its newfound easing cycle.

Trump Admin Follows Through on EU Tariff Threat

But as investors continue to grapple with the US-China tariff conflict, the Trump administration has potentially opened another front in its global trade offensive .

This morning, the White House slapped tariffs on $7.5 billion worth of EU imports. The World Trade Organization (WTO) authorized the US to impose these tariffs following a recent ruling related to illegal Airbus subsidies.

European officials have threatened retaliation, and they’re expected to receive permission to impose tariffs on US goods once a WTO panel rules on a case alleging that the US provided illegal subsidies to Boeing. That decision should arrive in early 2020.

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