Donald Trump needs to get tough on China to win in 2020, but a vulnerable Dow Jones can't take another trade war.
Stock market sentiment cracked on Friday, as the Dow plunged more than 600 points. While economic fundamentals have been dire, the real catalyst for the losses may have been a dramatic escalation in tensions between the United States and China. With talk of tariffs back on the table, President Trump is shunning Wall Street, and the reason couldn’t be more obvious.
One of the calling cards of the Trump administration was a sky-high stock market and incredibly low unemployment. With more than 30 million Americans now unemployed, and the Dow Jones well off its highs, regardless of who you blame, those chips are gone.
This leaves Trump and his advisers with a tough decision as to the general election in the Fall.
Do they continue to prioritize Wall Street, or do they solidify their support base with some good old fashioned “America First”?
If Friday were any indication, this decision has been made, and it’s not good for the Dow.
Unemployment is rampant, and the stock market is no longer Trump’s priority. Preserving his base and trying to carve into Biden’s “blue wall” have become top priorities.
U.S. relations with China are now at their lowest for many months. While Trump had hoped to sign the phase one deal and coast to another term on the back of sky-high stocks, this is no longer an option. The president blames the fallout from the coronavirus pandemic on China.
After Chinese state media mocked the U.S. criticism of their COVID-19 response, the White House responded by pushing the prospect of more tariffs in China’s direction.
This effectively means the play-nice period is over, and the trade war is back on. The fallout in the stock market was immediate, as equities sold off, and a significant move to risk-off trading was observed.
There was already severe skepticism over the recent rally on Wall Street, with many traders scratching their heads as the data collapsed, and the Dow soared to its best month in 33 years.
If the headwinds were not strong enough for the bulls, a resurgence of trade tensions could be the development that tips momentum back in favor of the bears. If Trump was testing the market’s resilience to bad news, the test was a definite failure.
At this point, the president’s hands are tied. He can no longer leverage the economy for votes, and while his supporters pretend that Biden is not a strong candidate, Trump is obsessed with polls. All these factors suggest that the election cycle is going to be hard-fought.
Being tough on China is a great tactic that gets red and purple state voters on board. The White House knows this, but it will mean giving up on the Dow Jones at precisely the moment momentum has started to fade.
That’s a tough pill to swallow for Wall Street and an even tougher one for a president who has reveled in record high after record high for most of his term.
Disclaimer: The views expressed in this article reflect the author’s opinion and should not be considered investment advice from CCN.com.
Last modified: September 23, 2020 1:55 PM