A new U.S.-China trade war is in danger of erupting. Both nations have exchanged harsh criticisms over the coronavirus pandemic, with Donald Trump threatening to pull America out of the WHO on charges that it’s a “puppet of China.” As a result, stock markets are likely to struggle today.
This January, both nations had agreed on a truce to their prior trade war. But the fragile accord looks set to crumble, with the previous trade war likely to enter an even more hostile phase.
Caught in the middle, the already vulnerable U.S. stock market will suffer. It saw improved fortunes after a trade deal was reached in December, but such improvement will be reversed by a new trade war, and not to mention the ongoing coronavirus recession.
A new U.S.-China trade war has taken a decisive step closer to becoming a reality. On Monday, President Trump threatened to permanently withdraw from the World Health Organization (WHO).
Writing to the Director-General of the WHO, Trump again accused the organization of having a pro-China bias. He also charged the WHO with having ignored non-Chinese sources of information regarding the coronavirus.
Concluding his letter, he wrote:
That is why it is my duty, as President of the United States, to inform you that, if the World Health Organization does not commit to major substantive improvements within the next 30 days, I will make my temporary freeze of United States funding to the World Health Organization permanent and reconsider our membership in the organization.
Trump’s previous attacks on China and the WHO had been firmly rejected by Beijing. Predictably enough, the Chinese government today responded to Trump’s latest barbs.
China has gone further than accuse Trump of “shirking responsibility.” In an editorial published Tuesday in the Communist Party-sponsored Global Times, editors accused Trump and the U.S. of “pure international hooliganism.”
Ominously, the editorial suggested that Trump’s actions may throw the world into a “deeper abyss.” It concluded,
We suspect there is nothing Washington dare not do right now.
American actions are scaring China, and Beijing may end up retaliating, increasing the chances of a new trade war.
If the coronavirus hadn’t already made things bad enough, a renewed and more serious U.S.-China trade war will make things even worse.
In 2018-19, the U.S.-China trade war threw the stock market into volatile disarray. Last August, for example, the Dow Jones suffered its worst day of the year after Donald Trump launched a Twitter tirade against China.
Much the same is likely to happen again now. With each attack, with each new tariff and sanction, the stock market will fall a little further.
The thing is, this time the coronavirus recession has severely weakened the stock market. Right now, the Dow Jones is just about hanging on only because the Fed is flooding the market with quantitative easing.
Thanks to Fed intervention, the stock market has partially recovered from a crash that saw the Dow Jones hit a three-year low of 18,591.
If the U.S.-China trade war does resume, the Dow is going to fall yet again–but much harder this time, because there will be less good news to prop it up.
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