Investors hunkered down Thursday, as signals from China and the United States suggested that both nations were girding for a long-term trade fight.
In Washington, the Trump administration announced a substantial aid package for farmers, in an effort to cushion the blow as China buys fewer American agricultural products in retaliation for tariffs. In Beijing, President Xi Jinping has tried to rally the nation by invoking key moments in Chinese Communist Party history to signal hardship ahead.
For stock investors, that has meant adjusting expectations to a conflict with no end in sight. Already, existing tariffs on each country’s exports have been raised, and the White House is weighing whether to expand the tariffs to include consumer products — from shoes to electronics — that currently don’t face levies.
Worries about the cost of this battle, to global growth, corporate profits and American consumers, sent stocks down across the globe on Thursday.
In the United States, the S&P 500 was down more than 1.2 percent.
The broad index has tumbled more than 4 percent in May, after negotiations between the United States and China suddenly faltered, shattering the calm that prevailed in markets since the start of the year.
On Thursday, the energy sector led the sell-off in American stocks, dropping 3.1 percent. Benchmark American crude-oil prices dropped more than 5 percent, reflecting concern about global economic growth and demand for oil. Oil is down more than 7 percent this week.
The tech sector also continued to slump, falling 1.7 percent and adding to recent declines in the wake of the Trump administration’s blacklisting of the Chinese telecommunications giant Huawei over security concerns. The order has prompted Google and mobile carriers to limit their work with Huawei.
[Read more about the impact of trade war fears on the semiconductor sector.]
The selling wasn’t just confined to sectors closely tied to trade. The Russell 2000 index of small capitalization stocks — typically more reflective of the domestic economy — fell 2 percent.
The next phase of the trade battle entails significantly more uncertainty for the consumer-focused American economy. The Trump administration plan to tax an additional $300 billion of Chinese imports annually would affect a broad range of everyday consumer goods, including 80 percent of all clothing imports, 65 percent of furniture and equipment, and 90 percent of durable goods.
The levies could push prices up, a potential headwind to an otherwise healthy consumer sector underpinned by a strong labor market and growing wages, according to Citigroup economists.
Yields on government bonds declined, as investors parked their money safe assets. Bond prices and yields move in opposite directions. The yield on the 10-year Treasury note fell to 2.31 percent at 3 p.m., according to Bloomberg data, its lowest level this year.
In Asia, major stock indexes closed broadly lower on Thursday. The Hang Seng in Hong Kong lost 1.6 percent, and the Shanghai Composite ended down 1.4 percent.
The trend was echoed in Europe, where the DAX in Frankfurt fell 1.8 percent and the FTSE 100 in London slipped 1.4 percent. Automakers in Europe were among the worst performers, dropping about 3 percent.
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