Trade worries, which had been simmering, have returned to a boil after President Donald Trump surprised the market with a threat to increase tariffs on goods from China.
U.S. shares appeared poised to open sharply lower following a rout in Asian stocks after Trump said in tweets Sunday that 10% duties on $200 billion on Chinese goods would increase to 25% on Friday. He added that $325 billion in Chinese goods that are untaxed would face a 25% tariff “shortly.”
The tweets mark a sharp escalation in trade tensions between the world’s two largest economies just when Wall Street’s nerves about the dispute seemed to be relatively calm. In fact, part of the reason stocks have hit all-time highs recently has been because of optimism that a deal would get done soon.
But that worry reared its head again Monday, sending investors and traders concerned about the global economic fallout from an intensified trade war out of stocks and into so-called safe-haven assets.
Wall Street’s main fear gauge, the Cboe Volatility Index (VIX), shot up nearly 40%, trading near 18 Monday morning after hitting its highest point since January. With nerves on edge, investors and traders flocked to assets perceived as safer, boosting the dollar and sending Treasury yields lower.
Meanwhile, stocks that have significant exposure to China were among the hardest hit. Caterpillar Inc (NYSE: CAT) was down more than 3% while Boeing Co (NYSE: BA) was off more than 2.6%. Both Dow Jones Industrial Average ($DJI) components derive a good portion of their revenue from the Asian nation. Chipmakers including Advanced Micro Devices, Inc. (NASDAQ: AMD) and Nvidia Corporation (NASDAQ: NVDA) were also lower, as was Chinese online retail giant Alibaba Group Holding Ltd. (NYSE: BABA).
As the market has been lured into relative calmness about the trade war given the optimism