US stocks had their biggest drop of the year after President Donald Trump threatened to ramp up tariffs on all Chinese imports. The comments sounded most alarm bells, as they revived fears of a trade war that had already spooked global markets during the first half of this year. Investors seemingly jumped at the opportunity, causing the worst one-day crash in major stock indices.
On Monday, President Trump threatened to increase tariffs on US imports from China. This unprecedented step has set the investment community abuzz with fear and trepidation. The president’s most recent threats come out of recent indictment charges against China. They say that China is unilaterally instituting new, nationwide, export controls including on rare earth elements critical to numerous high-tech industries. He charged that China was “slow-walking” on past deals. This decision further escalated the fight between the US and China over releasing sensitive materials to protect American companies.
Unsurprisingly, in light of these news, the broader S&P 500 index lost 1.2%, and the tech-heavy Nasdaq Composite lost even more 1.6%. Even in light of the previous optimism in the market, declines were inevitable. Wall Street had been looking through rising tariffs, focusing instead on better-than-expected corporate earnings. The final mishap would take the events in Berlin to an entirely new level. Over the weekend, President Trump tweeted that he doesn’t think it’s necessary to meet with Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation summit in South Korea later this month.
In the commodities sector, oil prices mirrored the volatility of the stock market. US oil prices tumbled 3.6%, with Brent crude crumbling by 3.25%. Earlier in the day, oil prices were plummeting. This was due in large part to positive marketing—specifically messaging around a potential ceasefire between Israel and Hamas. As a result, investors rushed to precious metals as a safe haven. Gold jumped 1.5% and silver jumped 1.8%, confirming an unmistakable flight to safety trend.
“There is no way that China should be allowed to hold the World ‘captive’,” – President Donald Trump
Amidst the latest round of trade tensions those investors have been worried about what fresh warfare will do to the economy and their bottom lines. José Torres, a senior economist at Interactive Brokers, noted that “investors are clamoring for safe haven holdings,” reflecting the growing uncertainty surrounding the market.
US equities have recently plunged into sharp bearish territory. This is a dramatic contrast from their performance in past weeks where they remained close to all-time highs. Given how tense and uncertain trade negotiations have been in recent weeks, this announcement was unexpected. Market participants are watching carefully for any developments that could change the course of US-China trade relations.