The US Dollar Index did not escape unscathed, plunging under the 99.00 level. That sudden decline came at the same time that President Donald Trump lit the trade war fuse by announcing that he would increase the tariff on steel and aluminum imports to 50%. His statements blasted China for violating a recent agreement on tariffs. This allegation of industrial espionage rattled the stability of the US economy, leaving traders in a risk-off posture.
Trump first disclosed the hike in a speech in Pennyslvania earlier this week. These tariffs are meant as a stick to beat global steel purveyors and escalate the increasingly silly trade war. “We’re going to bring it from 25% to 50% – the tariffs on steel into the United States of America, which will even further secure the steel industry in the United States,” Trump stated. Further scaring investors, his administration’s bellicose approach has got investors spooked and triggered a massive sell-off of American assets.
In response to Trump’s accusations, China’s Ministry of Commerce announced that it had stuck to the tariff bargain. In defense of Beijing, a spokesperson from the ministry praised the Chinese response. They hence canceled or suspended the corresponding tariff and non-tariff measures targeting the US “reciprocal tariffs.” As US Trade Representative Jamieson Greer responded, that was because China hadn’t lived up to their previous agreement to remove non-tariff barriers.
This most recent escalation comes on the heels of a federal court ruling. The court concluded that Trump had exceeded the bounds of his authority by using broad import tariffs and ruled the executive orders issued on April 2 illegal. A three-judge panel at the Manhattan-based Court of International Trade acted with unprecedented swiftness. They pressed the administration to repeal the so-called “Liberation Day” tariffs. The emergency stay means that the ruling is not yet in effect while the court processes this appeal. Unfortunately, this decision clears the way for the implementation of Trump’s tariffs.
That’s especially true after Washington and Beijing recently signed their first phase agreement to reduce tit-for-tat tariffs. This agreement arrived amid charmingly advanced talks in Geneva and leaves open the door to fresh discord. It’s been his inflammatory rhetoric—like Trump’s repeated claims that China has “completely broken its deal with us”—that have really soured relations. The trade war is still getting worse. Consequently, worries since its announcement of its negative effect on the US economy are rising and traders are souring with a “Sell America” approach.
The US Dollar Index has fallen as a result of these uncertainties. Now investors are reacting to the production risks tied to these tariff threats. Market analysts believe that this will have permanent effects on the economic environment both nationally and globally.