On Thursday, March 22, President Donald Trump announced plans to impose tariffs on $60 billion worth of Chinese exports to the United States—and the move did not sit well with investors. The Dow Jones industrial average or "Dow" (an index that tracks 30 large U.S. stocks) dropped more than 700 points, or nearly 3 percent, in the hours after the announcement. On Friday, it slid another 425 points.
This comes on the heels of Trump's March 1 announcement of plans to impose tariffs of 25 percent on foreign-made steel and 10 percent on imported aluminum, which triggered a similar short-term drop in the stock market. And the market's remained bumpy in the weeks since.
Hold on... What’s a tariff?
It’s a tax specifically on imported goods and services, making them more expensive.
Why would anyone want that?
Often, it’s to discourage buying stuff from abroad and to protect domestic companies from foreign competition. That’s the president’s goal in imposing tariffs, he says, as well as to punish what he deems unfair treatment of the U.S. by China (and other countries) when it comes to trade policy.
Why wouldn’t the stock market like that?
Generally, the market doesn’t respond well to uncertainty or political turmoil—and global response hasn’t been positive to the announcements so far. After the first announcement, the European Union, Germany, Canada and other nations threatened retaliation against the U.S. (Canada was later exempted, as was the EU—at least temporarily), and even the World Trade Organization voiced concern.
On Thursday, China promised its own "firm and necessary" retaliatory measures. And the next day, it announced plans to impose import tariffs on 128 U.S. products, with an import value of $3 billion, including staples like wine, fruit and pork. As a big importer, China imposing their own tariffs—or buying from other countries instead—could hurt the U.S. economy.
Plus, tariffs could also lead to higher prices for us. Plenty of U.S. companies use foreign-made steel and aluminum, so raising prices on those materials means they may end up passing the cost on to us. That means we could pay more for everything from beer, LaCroix and other (aluminum) canned goods to cars and household appliances. And Americans buy a lot of Chinese-made goods that may soon be more expensive.
So what should I do?
Sit tight. Details are still light, which means what happens next is anyone’s guess. So don’t worry about boosting your beer budget yet, and certainly don’t start moving investments around. Remember day-to-day market movements are normal. Just stay focused on your own long-term agenda, and stick with the investing strategy you’ve laid out to reach your goals.
This post was updated on March 23.
March 2, 2018