
Written by Samer Hasn, Senior Market Analyst at XS.com
S&P 500 E-mini futures are down more than 0.2% in early trading ahead of the US open after a positive open.
US stocks are set to fall further today despite the de-escalation of the trade war with the suspension of tariffs from the US on Canada and Mexico. Meanwhile, the market is still waiting for the start of this war with China, which in turn responded with steps that will remind us of the consequences of the escalation on the US domestic front.
According to Reuters, China has opened an antitrust investigation into Google, in addition to imposing restrictions on exports of some rare minerals such as tungsten and refined bismuth that are not produced in the US, and imposing tariffs on imports of coal and liquefied natural gas. This adds to previous concerns about the damage caused by potential restrictions on agricultural exports from the US.
These tariffs could not only cause widespread disruption to supply chains for goods that rely on products imported and exported to and from the United States but could also harm companies involved in international trade in general, amid the volatility of the US dollar in light of this escalation.
The Editorial Board of The Wall Street Journal believes in an opinion piece that the need now is not to strengthen the dollar or devalue it, but to stabilize it against foreign currencies.
It is worth noting that the 100-day standard deviation (a measure of volatility) of the Dollar Index is near its highest levels since March 2023. The standard deviation rises significantly during periods of rises followed by sharp declines and vice versa.
Also, a long-term consequence of this trade war, according to The New York Times, is the acceleration of the formation of trade blocs that exclude the United States. If the countries targeted by the tariffs can find alternative markets with fewer restrictions for their products, this would weaken the power of Donald Trump’s favorite weapon, which is tariffs, in addition to reducing their political dominance.
Thus, tariffs are more than a trade conflict, but rather a tool for Trump to negotiate highly important issues on the political and national security side as well as the economy. The Editorial Board of The Journal sees in another opinion piece that Trump boasts that his tariffs are an effective diplomatic weapon against his allies and enemies. Also, for example, the director of the National Economic Council, Kevin Hassett, told CNBC that this war is a drug war, not a trade war.