US equities and others around the world were hit hard on Monday August 5th, 2019 with news out about heightened tensions in the brewing trading war between the United States and China. Stocks had been trading down the entire day in the United States and gradually drifted towards being down a total of 950 points on the Dow Jones Industrial Index at the lows on the day. What had caused all of this chaos?
China Devalues Its Currency
China was ready to respond to recent tariffs leveraged on their exports to the United States. The Trump Administration had already announced tariffs of ten percent against China imports starting in September. There was also an indication from the President that these tariffs could increase to twenty-five percent down the road if conditions did not improve.
The leaders in China did not take this news well and responded by allowing their currency to be devalued against the US Dollar. They also announced a halt to all purchasing of agricultural products from the United States. That could have a serious impact on farmers in the United States and is quite frankly just the latest in a battle that has been ongoing between these two superpowers.
Labeled A Currency Manipulator
The Administration took the steps to officially label China a currency manipulator. This is considered the next step in the battle between the two countries. It could be considered another shot at China that may cause them to retaliate yet again. That could spell more trouble both for the stock market as well as for the agricultural industry in the United States.
It is important to note that this is purely a symbolic measure, but it is something that is embarrassing to the government of China regardless. Thus, it makes a lot of headlines around the world to have the finger pointed at them in this way. That alone could result in further actions taken against the US economically.
The market is still shaky after a big day of news on Monday and there is a lot more to come. There are many major news stories that are looming in the wings. Brexit is probably the biggest one that people are paying attention to, but we are also interested in seeing what happens with Federal Reserve interest rates. These and many other factors could make for a wild market in the near future.