World stock markets fell sharply on Wednesday, losing ground after U.S. President Donald Trump imposed tariffs on $50 billion of Chinese goods. On top of that, the Bank of Japan on Wednesday said it would expand a buying stimulus program, while Germany pushed back against French moves to drop the euro.
But, despite these three destabilizing factors, Reuters reported that currencies weakened against the dollar, while gold and bonds rallied after central banks injected $200 billion into the market.
This was because Mr. Trump’s announcement had not been widely anticipated by investors. It also seemed less severe than expected, from what CNN reported, by only raising tariffs on $50 billion of Chinese goods and not threatening more.
This began with Mr. Trump’s announcement on Tuesday, in which he said that he would set tariffs on all remaining Chinese imports and announced plans to boost U.S. steel production. He said in the statement: “As I have made clear, if China insists on going forward with its plan to build massive amounts of capacity in the textile, plants, vehicle and other industries, the United States will simply put a tariff on every Chinese product that enters our country.”
Later on Tuesday, Mr. Trump delivered remarks: “We’re going to have a great victory for the American worker. They’re going to be thrilled. The Chinese will be crushed, the Chinese will be crushed.”
China immediately threatened to retaliate, as it had after Mr. Trump imposed tariffs on steel and aluminum earlier this year.
Mr. Trump has scheduled a meeting with Chinese president Xi Jinping to take place at the G-20 meeting in Argentina next month.
And, while most U.S. stock markets closed down slightly on Wednesday, the stock market in Shanghai was down even more, by 2.5 percent.
Indeed, this news coincided with further bad news from Europe, when German chancellor Angela Merkel said her country would oppose abandoning the euro. This reverses her earlier support of some form of euro exit, as suggested by French president Emmanuel Macron.
In anticipation of more uncertainty, along with the trade war sparked by Mr. Trump’s tariff threats, U.S. stocks were marked lower for most of the day.
U.S. gold futures, or spot prices, for June delivery shot up to a high of $1,316.40 per ounce, before settling down to $1,315.60.
The Fed chair, Jerome Powell, also spoke on Wednesday, and said that the central bank’s latest plans will reduce its holdings of Treasury bonds and mortgage-backed securities. But, he also said that any reduction in its bond holdings would depend on how quickly inflation and growth recover from their recent weakness.
In this environment, investors are highly reluctant to place new money into stocks. Bonds, on the other hand, are surging in value.
One bright spot from Wednesday, according to Reuters, was the news that the European Union said it would impose tariffs on 1,250 U.S. products, including bourbon, cheese and motorcycles. The move signals a drop in diplomatic tensions with the United States.