By CCN: Dow Jones futures pushed higher in early trading Thursday, seemingly ignoring Donald Trump’s latest trade threat.
According to Reuters, the president said he was prepared to slam China with tariffs on all Chinese imports:
“I could go up another at least $300 billion and I’ll do that at the right time.”
Not content with the existing tariffs on $200 billion worth of Chinese imports, the newest threat would take the total figure to half a trillion dollars. That’s the entire value of all Chinese imports.
If he follows through, it would undoubtedly have a negative effect on the global markets. Yet the Dow hasn’t even flinched at the news.
Dow futures pop higher despite trade war escalation
At 5.51 am ET, Dow Jones Industrial Average futures clawed 66 points higher (0.26 percent) pointing to another strong open on Thursday. The Dow looks to extend its 700 point rally, climbing to 25,622.
Nasdaq and S&P 500 futures followed suit, up 0.35 percent and 0.26 percent respectively. In the Asian trading session, China’s benchmark index, the Shanghai Stock Exchange (SSE) Composite fell 1.17 percent. Japan’s Nikkei index ended flat.
Trump’s $500 billion threat
The president triggered a stock market selloff in May when he ramped up tariffs from 10 percent to 25 percent on $200 billion worth of Chinese imports. But the president still has plenty of room to maneuver. The US imports a total of $505 billion of Chinese goods.
Donald Trump warned back in 2018 that he was “ready to go to 500.” That figure is still firmly in his mind as he continues negotiations.
Naturally, China threatened to hit back. Chinese military spokesperson Gao Feng said:
“If the United States wilfully decides to escalate tensions, we’ll fight to the end.”
Although China is prepared to fight, Trump still has huge leverage over the country, which only imports $129.9 billion of US goods.
Dow double whammy after Mexico threat
The news comes just hours after Trump slammed Mexico with a new tariff threat. As CCN reported, the president said 5 percent tariffs will come into force on Monday, after talks on illegal immigration broke down.
“Tariffs at the 5% level will begin on Monday, with monthly increases as per schedule.”
Although Dow futures slid on the news, the market quickly paired losses and soared higher overnight. Why are traders ignoring the increasing trade threats from the White House?
Dovish Fed still driving the Dow
Traders are still basking in the new dovish tone out of the Federal Reserve. Earlier this week, Fed chairman Jerome Powell said the institution would act “appropriately” if the trade war negatively impacted the economy.
Although Powell didn’t explicitly mention interest rate cuts, traders are now pricing in a 70% chance of a rate cut in July.
Traders are, perhaps naively, pinning their hopes on rate cuts to stem the bleeding from trade war fears. As the IMF confirmed, Trump’s tariffs will already slash global economic output by 0.5 percent in 2020. Just imagine what happens if he extends tariffs to a further $300 billion imports.
Trump waiting for the “right time” for fresh tariffs
Trump is likely waiting until the campaign for re-election kicks off before triggering the next round of China tariffs. The president knows that strong tariffs plays well with his base, and he’ll wait for the opportune moment to pull the trigger.
It proves one thing for sure, the trade war is far from over.