If The Stock Market Is Falling This Much Already, What Is Going To Happen If There Is No Trade Deal With China By Friday?
If The Stock Market Is Falling This Much Already, What Is Going To Happen If There Is No Trade Deal With China By Friday? by Michael Snyder for The Economic Collapse Blog
If negotiations between the Trump administration and the Chinese government do not produce a trade deal by Friday, it is going to be absolutely catastrophic for Wall Street. On Tuesday, trade fears pushed the Dow Jones Industrial Average down 473 points. It was the second-worst trading day of 2019 so far, and at one point during the trading session the Dow had fallen as much as 648 points. But most of the experts are assuring investors that a trade deal with China will be finalized before Trump’s new tariffs go into effect on Friday. We are being told that the Chinese will almost certainly cave in on some of their most important demands and that Trump will get the favorable trade deal with China that he has been seeking.
But what if it doesn’t happen after all?
If the Chinese give in now, they will look exceedingly weak, and any trade deal will be hailed as a great victory for the Trump administration.
To me, it seems exceedingly unlikely that the Chinese would want to make any sort of a deal under such circumstances.
The Trump administration has essentially pointed a loaded gun at their heads and has told them that they better agree to a trade deal by Friday or else.
There are some countries with which such an approach would work, but China is definitely not one of them.
And I may not have as much “foreign policy experience” as John Bolton, but even I know that if you want to make a deal with China it is probably not a good idea to antagonize them with warships in the South China Sea at the same time you are trying to negotiate with them.
Perhaps I will be proven wrong, but it seems to me that trying to bully China could backfire spectacularly.
And at this point, the Trump administration better deliver a trade deal with China by Friday, because if they don’t there are going to be very serious consequences.
First of all, once investors realize that a trade deal with China is dead we are going to see a violent downturn in the stock market. According to one expert quoted by USA Today, “the market could go down another 10% plus”…
“The biggest threat to this market is the U.S.-China trade issues,” Ives said. “If China and the U.S. dig in on trade, it’s time to put on the hard hat because the market could go down another 10% plus.”
And in a CNBC article entitled “WORST CASE SCENARIO: Here’s what it looks like if Trump starts a trade war with China”, a figure of “10%” was also thrown around…
The worst-case outcome there, say experts, is a fight that sends the S&P 500 into a correction — which would be 10% off that key indicator. The companies likely to be hardest hit, say the experts, are likely Boeing, Apple and Caterpillar. They are all down about 5% this week already.
Then the pain ripples into the metals, mining and automobiles sectors.
Unfortunately, a decline of 10 percent is definitely not the “worst case scenario” that we could be facing.