U.S. stocks fell with other markets around the world on Friday after the Trump administration stepped up the trade dispute between the world’s two biggest economies by announcing tariffs on $50 billion of imports from China.
China almost immediately promised to retaliate with its own tariffs of the same scale, raising the possibility of an escalating trade war that could leave the global economy as collateral damage. Barriers to trade could result in higher prices at stores for all kinds of products, weaker profits for companies and slower growth around the world.
Many economists see free trade as a boon for the global economy, making it more efficient and allowing companies to earn bigger profits, which in turn leads to higher stock prices. President Donald Trump, though, has railed against the deficits that the United States has with other countries as unfair.
Investors have been closely following the United States’ trade disputes with its partners, and many had expected Trump to announce tariffs against Chinese imports. The hope is that they are merely a negotiating tool, used to craft sweeping trade deals rather than as ends in themselves.
KEEPING SCORE: The S&P 500 was down 11 points, or 0.4 percent, at 2,771, as of noon Eastern time. If it holds there, the index will have lost all its gains for the week and lock in its first weekly loss in a month. Energy stocks had the biggest losses, hurt by a sharp drop in the price of oil.
The Dow Jones Industrial Average dropped 223 points, or 0.9 percent, to 24,952, and the Nasdaq composite sank 29, or 0.4 percent, to 7,731.
ANALYST’S TAKE: “Ultimately, a negotiated solution is likely,” said Shane Oliver, head of investment strategy at AMP Capital. But even though China and the U.S. probably want to negotiate, “the risks are high.”
WORLD MARKETS: Stock markets in Europe and Asia were mostly down.
The DAX in Germany lost 0.7 percent, and the CAC 40 in France dipped 0.5 percent. In London, the FTSE 100 lost 1.7 percent. In Asia, South Korea’s Kospi shed 0.8 percent, and the Hang Seng in Hong Kong fell 0.4 percent. Japan’s Nikkei 225 index was an outlier and rose 0.5 percent.
YIELDS: Treasury yields fell for a second straight day, and the yield on the 10-year Treasury sank to 2.91 percent from 2.94 percent late Thursday. It has more than given up all its gains after the Federal Reserve indicated earlier in the week that two more interest-rate increases may be coming this year, which was a more aggressive path than some investors had expected.
The Fed has raised interest rates four times in the last year, on the back of a growing economy. It is ahead of its other big counterparts around the world in getting conditions closer to normal after years of stimulus and record-low interest rates following the Great Recession.
The Bank of Japan said on Friday that it would hold steady with its stimulus program. The European Central Bank, meanwhile, said on Thursday that it would halt its bond-buying program after the end of the year, though it also pledged to hold off on rate increases through the summer of 2019.
OIL SLIDE: Benchmark U.S. crude fell $2.25 to $64.64 per barrel. Brent crude, the international standard, lost $2.73 to $73.21. That helped drag energy in the S&P 500 down 2 percent for the largest loss among the 11 sectors that make up the index. Marathon Oil had the biggest loss in the S&P 500, down 5 percent to $20.07. Anadarko Petroleum dropped 4.5 percent to $67.83, and Newfield Exploration fell 4.1 percent to $28.00.
COMMODITIES: Gold dropped $28.30 to $1,280.00 per ounce, and silver fell 66 cents to $16.60 per ounce. The price of copper, which often moves with expectations for the strength of the economy, lost 8 cents, or 2.5 percent, to $3.14 per pound.
CURRENCIES: The dollar dipped to 110.55 Japanese yen from 110.57 yen late Thursday. The euro rose to $1.1618 from $1.1591, and the British pound rose to $1.3288 from $1.3281.