The Dow fell nearly 400 points Thursday as investors grow increasingly worried about the US-China trade war.
Trade tensions have increased for several weeks as the United States and China both raised tariffs on each other’s goods, and the United States placed restrictions on US firms doing business with Chinese tech giant Huawei on grounds of national security.
Tech stocks bore the brunt of the pain, as the technology sector could be particularly hard-hit if the trade war escalates. The Nasdaq was down more than 1%. S&P 500 was also down more 1%.
US Secretary of State Mike Pompeo said the dispute over Huawei could escalate.
He reiterated the security risk the Trump Administration says is posed by Huawei’s technology and said he expects other international companies to elect not to use their products.
“If you put your information in the hands of the Chinese communist party, it’s de facto a real risk to you. They may not use it today, they may not use it tomorrow,” Pompeo said in an interview with CNBC on Thursday. “To say they [Huawei] don’t work with the Chinese government is a false statement.”
“We want the global 5G system when it’s ultimately built out to have a Western value set embedded in it,” Pompeo added. “Not just American technology, technology that will come from Europe, it’ll come from other parts of Asia. This is a global phenomenon. Our requirement is that this technology create trusted networks.”
Pompeo said he hoped that the “national security component” and the trade relations between the United States and China could be kept in separate lanes. He told CNBC he has spoken Treasury Secretary Steve Mnuchin “almost every day” during trade negotiations and that he’s seen that team make progress.
But Chinese officials suggested that the dispute over Huawei could block trade negotiations in the escalating trade war.
“If the US would like to continue to talk, it should show its sincerity and correct its wrong actions,” said Gao Feng, spokesman for China’s Ministry of Commerce. “Only on the basis of equality and mutual respect, the talks can be continued.”
“China urges the US to stop the wrongdoings to avoid the further impact on the China-US trade relations,” he said. “China will take necessary measures to resolutely safeguard the legitimate rights and interests of Chinese enterprises.”
In recent days, leading institutional investors and Wall Street firms have started to change their outlook on the dispute, said Art Hogan, managing director and chief market strategist for National Securities. The consensus had been that a deal would be reached before higher tariffs went into effect. Now the belief is that the trade dispute will continue to escalate, he said.
“Everyone has sort of pivoted to that,” Hogan said. “That has larger economic implications. The previous tariffs hit farmers, some manufacturers. This would hit everybody.”
Hogan there is still hope among investors that both sides reach a deal without a full scale trade war. But if there is a prolonged period of high tariffs and other actions, such as the Hauwei blacklist, that could mean even worse times for the market, Hogan said.
“If in fact we’re heading towards full scale, mutually destructive trade war, the market has not yet priced that in,” he said. “This could well be just the start of the move.”
US oil fell 4%, tumbling below $60 a barrel, as trade war concerns and bearish inventory data weighed on oil prices. The yield on the 10-Year Treasury is now 2.33% — the lowest since December 2017.
Best Buy fell 5% after warning it may have to raise prices because of the trade war.
But L Brands soared 13% on a better-than-expected sales at Victoria’s Secret.
Markets in China closed sharply lower with the Shanghai Composite and the Hang Seng both ending more than 1% lower.
Stocks were also sharply lower across Europe, where mounting worries about Brexit, the state of UK Prime Minister’s Theresa May’s government and European parliamentary elections also weighed on investor confidence.
