U.S. shares declined again on Wednesday on the eve of talks between representatives from the U.S. and China, who are prepared to resume trade negotiations in a last chance to stave off more tariff increases.
The Dow dipped 64 points to 25,900. That follows Tuesday’s decline of 473 points, or 1.8 percent, to 25,966, marking the blue-chip index’s first close below 26,000 since March 29, and a smaller dip on Monday. The broader S&P 500 and technology-heavy Nasdaq composite also opened lower on Wednesday following sharp declines on Tuesday.
The world’s two largest economies have already raised tariffs on hundreds of billions of dollars of each other’s goods in their dispute over U.S. complaints about Chinese technology ambitions. A ramped-up trade war could impact U.S. businesses by increasing their costs for imports, which would either be eaten or passed onto consumers in higher prices. Economic growth, earnings, profits and stock prices could feel the impact, Cumberland Advisors’ David Kotok told Politico.
“The trade war risk is now being confirmed,” Kotok said. “That is a healthy realization rather than a fantasy goldilocks scenario. It’s about time markets woke up to the reality that a trade war hurts everyone.”
Washington has accused Beijing of reneging on its commitments and is preparing to raise import taxes on $200 billion of Chinese goods to 25 percent from 10 percent on Friday, and to impose tariffs on another $325 billion in imports, covering everything the country ships annually to the United States.
Trade talks are scheduled to resume Thursday in Washington.
There’s a “high likelihood that the increase in tariffs will temporarily go into effect as threatened,” wrote Jim O’Sullivan at High Frequency Economics, in a Wednesday research note.
The latest flare-up in trade tensions will likely cool if talks continue as expected, Tianjie He of Oxford Economics said in a commentary. But, he added, “the probability of renewed escalation of the U.S.-China trade war has now risen substantially — which would be a drag on both the economies, especially China.”
China import slump
Adding to the gloom, China reported Wednesday that its exports sank 2.7 percent in April from a year earlier, a reversal from March’s 14.2 percent growth and well below private sector forecasts of growth in the low single digits.
Imports of American goods fell 26 percent from a year earlier to $10.3 billion. Exports to the United States, China’s biggest foreign market, were down 13 percent at $31.4 billion.
Uber, Lyft strike
Many drivers for ride-hailing giants Uber and Lyft are turning off their apps to protest what they say are declining wages at a time when investors are flooding the companies with billions of dollars. Demonstrations are planned in 10 U.S. cities Wednesday, including Chicago, Los Angeles, New York, San Francisco and Washington, as well as some in Europe.
The protests come in advance of Uber’s initial public stock offering on Friday. Uber aims to raise $9 billion from investors and is expected to be valued at up to $91.5 billion. Lyft shares are down about 18% from their $72 IPO in April, closing at $59.34 Tuesday.