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Dow Futures Sway as U.S.-China Trade Spat Lurches Back into Focus

Josiah Wilmoth
Last Updated September 23, 2020 2:26 PM
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  • Dow futures suffered a triple-digit setback on Thursday.
  • U.S.-China trade talks have taken a back seat in recent months, but they could be a source of fireworks ahead of the election.
  • There’s speculation Trump administration China hawks could scheme to damage relations permanently – in case Joe Biden wins the election.

The Dow Jones Industrial Average (DJIA) looks set to suffer its fourth consecutive loss today, with futures pointing toward a pullback of more than 100 points at Thursday’s opening bell.

Yesterday’s Federal Reserve minutes clearly spooked investors, either because of ominous commentary about the economic recovery or because the FOMC resisted committing  to yield curve control.

Domestic problems aren’t the only thing Wall Street has to worry about today. U.S.-China trade talks are about to veer back into focus .

Dow Futures Point to 4th Straight Losing Session

It’s against this backdrop that the Dow Jones is trending lower today. As of 8:48 am ET, Dow futures had fallen by 109 points or 0.39% to 27,523.

dow jones industrial average futures today
Dow futures are pointing toward a fourth straight losing session for the stock market’s blue-chip bellwether. | Source: Yahoo Finance 

S&P 500 futures slid 0.42%, while futures tracking the tech-heavy Nasdaq index declined by 0.24%.

U.S.-China Trade Talks Should Be on the Market’s Radar

Markets exhaled a bit this morning when China’s commerce ministry announced that Washington and Beijing planned to resume negotiations within the near future.

The two countries are scheduled to conduct a six-month review of the phase one trade agreement they signed on January 15 – just four days after China confirmed  its first COVID-19 death.

Trump blames Beijing for the pandemic, which is responsible for at least 173,000 deaths in the United States. He said Tuesday he had called last weekend’s trade talks off . Watch his remarks here:

“I postponed talks with China,” he said. “You know why? I don’t want to deal with them now…. With what they did with this country and the world, I don’t want to talk to China right now.”

Today’s news assured investors that U.S.-China relations aren’t permanently on ice, but given the way on-again, off-again trade talks vexed the Dow Jones last year, there’s no guarantee the next round of negotiations will go smoothly.

Although U.S.-China tensions have understandably taken a back seat to the pandemic in the national conversation, the stakes have arguably never been higher .

Polling suggests President Donald Trump needs a home run to make the upcoming presidential election competitive – much less secure an upset victory. There’s little doubt the White House will swing for the fences when negotiations with Beijing resume.

U.S. opinion on China, dow jones, donald trump, u.s.-china trade negotiations
Nearly three-quarters of Americans have an “unfavorable” view of China. Will that encourage Trump to take a hardline stance when negotiations with Beijing resume? | Source: Pew Research Center 

Trump knows unfavorable views of China have soared to new highs  in the U.S. amid the coronavirus pandemic.

Taking a hardline stance against Beijing in pre-election trade talks could be a winning issue for him. With his job approval on the economy  ranging below 50%, China might be the only winning issue he has left.

That could explain his assault on TikTok . And WeChat . And Huawei . And his administration’s suggestion that some Chinese stocks be booted  from U.S. exchanges.

A Menacing Prospect for the Dow Jones

There’s even speculation that longtime China hawks within the administration will scheme to steer the president toward aggressive policy actions that will fundamentally alter the state of play between the two economic superpowers.

According to Douglas H. Paal, a distinguished fellow at the Carnegie Endowment for International Peace, this would give administration hawks a “win-win” in November  – no matter who wins.

The hawks have less than three months before the election to raise the ante, and a strong Chinese reaction could give them a win-win. They would win if Trump regains an electoral advantage over Biden, or they could win if they leave Biden a mess to clean up.

That’s a menacing prospect for a Dow Jones Industrial Average loaded with stocks with substantial exposure to China.