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Dow Surges While Traders Recklessly Ignore Thundering Alarm Bell

Last Updated September 23, 2020 12:44 PM
Ben Brown
Last Updated September 23, 2020 12:44 PM

By CCN.com: The Dow Jones surged on Tuesday after the US government rolled back a handful of minor restrictions on Huawei. But traders are recklessly missing the bigger picture.

Former US ambassador Curtis Chin warned this morning that the trade war with China would “get worse before it gets better ” as Xi Jinping battles to “show he’s in charge.”

Dow Jones Explodes Higher

After yesterday’s sell-off, the Dow Jones Industrial Average zoomed higher today, gaining 179.45 points or 0.7 percent by 3:17 pm ET to reach 25,859.35.

dow jones industrial average chart
The stock market is surging, but investors are missing the bigger trade war picture. | Source: Yahoo Finance

The S&P 500 is also seeing a strong recovery, up 24.24 points or 0.85 percent to 2,864.41 as of the time of writing. The Nasdaq leads the pack with an 83.7 point or 1.09 percent surge to 7,786.20.

Traders appear to be in risk-on mode after the US government eased restrictions on Huawei for a 90-day period. Google, who yesterday cut ties with Huawei triggering a broad market selloff, reversed its decision  and will continue to provide Android updates for Huawei devices.

The news has eased worries of “tech cold war,” but the specter of an all-out US-China trade war still looms large.

US-China Trade War Will “Get Worse Before It Gets Better”

Speaking to CNBC, former US ambassador Curtis Chin painted a gloomy picture of the ongoing trade negotiations, saying things will get worse from here. He cited China’s descent into nationalism and Xi Jinping’s desire to appear strong.

“Xi Jinping needs to show he is in charge, that there’s stability in that nation as he continues to struggle to revive that better life for all Chinese.”

In other words, the Chinese president isn’t likely to back down yet. Chin said that China is a “vindictive” nation which isn’t about to succumb to US threats.

“If we look at China’s behavior, it does so many things to lift up their people, but it is also known as a vindictive nation, (it does) so many things to countries and companies they don’t necessarily like.”

Growing Nationalism in China Could Threaten Dow

Chin also pointed to signs of increasingly nationalist policies in China. The country delayed this week’s Game of Thrones broadcast in what is widely viewed as a crackdown on US entertainment exports.

“It shows you that China is ramping up its nationalism as it tries to think through how to deal with this US-China back and forth right now.”

If China is turning further towards nationalism, it could lead to an even tougher deadlock for trade negotiations.

For now, trade talks have ground to a halt. Trump famously increased tariffs from 10 percent to 25 percent on $200 billion worth of Chinese goods. China struck back with additional tariffs on $60 billion US goods.

Focus on the Big Picture

The lifting of Huawei restrictions is undoubtedly a breath of fresh air for traders. Chipmakers like Qualcomm and Nvidia are among the biggest risers, up 1.64 percent and 2.06 percent, respectively.

However, it would be wise for investors to zoom out and take stock of the bigger picture. The Huawei debacle is a small part of a much broader trade war. One with no signs of reaching a conclusion yet.

Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.com.