The Dow Jones Industrial Average gained almost 200 points on Tuesday, reaching 25,877. The S&P 500 ended the day at 2,864, after growing by 0.9%. The tech sector did even better, posting a 1.2% climb for the day. Nasdaq also showed strong movement up, rising by 1.1% to 7,785.
Analysts believe the market was reacting to the decision by the Commerce Department on Monday night to allow Huawei to buy American products so they can maintain their existing networks and allow owners of Huawei phones to receive updates to their software. The agreement is only until August 19, but at least for now it means consumers with Huawei handsets will enjoy uninterrupted service.
Investors were worried that the original basket of restrictions was a sign that the trade war between China and the USA was getting worse.
UK International Trade Secretary Dr. Liam Fox hosted several events designed to reinforce the economic relationship between the UK and the USA. The events took place on October 22, 2018 on board the UK’s Royal Navy’s HMS Queen Elizabeth, docked in New York Harbor.
The New York events come in the wake of the announcement by the US Treasury Secretary, Robert Lighthizer, that the US will commence talks with the UK to forge a new US-UK Free Trade Agreement to go into effect when the UK leaves the European Union.
The Department for International Trade presented a round-table discussion including some of the UK’s key computer companies. They presented their new technological advances to several US Fortune 500 companies in the hopes of forging some business partnerships.
The Secretary, Dr. Fox, spoke during the proceedings. He emphasized the ability of the UK to protect against serious cyber threats as they grow in number and danger. He announced a new sub-committee of the Board of Trade which will investigate what methods UK companies can use to grow the amount of imports in the cyber space, and how UK-US cooperation can improve the fight against cyber-attacks.
The floating backdrop of the great ship helped set the stage for Dr. Fox’s joining with the Maritime UK to host the very first Maritime Nations Forum between the US and the UK. The forum focused on the ways these two great sea-faring nations can improve maritime trade and relations.
The major indicators did not falter the day after President Trump announced he was raising the threatened tariffs on China from 10% to 25% on $200 billion worth of products. The NASDAQ composite, the Dow Jones Industrial Average and the S&P 500 were all higher by a bit following the announcement.
The consensus among analysts is that US business will survive the latest signs of a coming trade war as well as they have previous similar threats from the president and from reactions from abroad.
In an interview Randy Frederick, vice president of trading and derivatives at Charles Schwab& Co. Inc said,
“The economy generally is so strong that, despite the challenges of the potential trade war, the strength of the economy is more than offsetting that. Corporations have posted record profits this quarter that we haven’t seen in over a decade.”
There have been warnings, however, from companies such as Coca Cola, General Motors, Caterpillar, Ford and Harley Davidson that the tariffs of 25% already imposed on steel and 10% on aluminum; and previous tariffs on $34 billion of Chinese goods, will have negative consequences on 2018 earnings, and further into the future. Retaliatory tariffs have already been imposed by China and US allies like the European Union, Mexico and Canada. There are also many smaller businesses that have suffered from the tariff policy.
Not everyone is suffering. Many companies have seen higher profits during Q2. Apple’s sales in China flew to 19 percent from March to June. Caesars Entertainment Corp showed an 89.3% increase in profits to $282 million. And even though Caterpillar predicted higher prices, the company’s net income rose 112% during Q2 to $1.7 billion.
These data points are not indicative of anything, since the tariffs will not be imposed until September at the earliest, and their effect will not be manifest until months later. US Business is still fearful of what tariffs will do to their bottom lines:
“We said before that this round of tariffs amounted to doubling down on the recklessness of imposing trade policy that will hurt U.S. families and workers more than they will hurt China. Increasing the size of the tariffs is merely increasing the harm that will be done,” National Retail Federation CEO Matthew Shay said in a statement. “Quite simply, there has been no better example of cutting off one’s nose in order to spite the face.”
The effect of the US pulling out of the Iran nuclear agreement will not only reverberate in Iran. US companies will also feel the bite of newly imposed economic sanctions on the regime of Ali Khamenei, Iran’s Supreme Leader.
The US withdrawal from the agreement will force the US government to revoke existing licenses allowing for US companies to do business with Iran. Treasury Secretary Steven Mnuchin said on Tuesday that licenses held by Boeing Company and Airbus Group, Boeing’s European competitor, will be nullified by the US withdrawal from the agreement.
“The existing licenses will be revoked,” Mnuchin said to reporters.
The company responded by saying it will consult with the government on what their next move should be.
“As we have throughout this process, we’ll continue to follow the U.S. government’s lead,” Boeing commented.
Airbus is also dependent on licensing from the US to sell its airplanes to Iran due to the US-made parts Airbus uses in its aircraft.
There will be waivers and exemptions made under certain conditions for certain products and countries, but those conditions were not discussed by Mnuchin.
Mnuchin added that the new sanctions will also seriously limit the sale of oil by Iran, which sells about 5 percent of the world’s oil, making it the fifth largest oil producer in the world. He said that there will be a 6-month grace period to allow countries to finish up existing contracts and implement “significant reductions” in the amount of crude oil they purchase from Iran.
The secretary said he does not believe the price of oil will rise by much since he expects other countries will respond to the new sanctions with increased oil production.
Mnuchin said that the goal of the new sanctions is to force Iran to come to the table to renegotiate the Iran nuclear deal.
According to Politico, two White House officials stated that a draft order to withdraw from NAFTA has already been submitted for the last stages of review, and could be released by the end of this week, or early next week.
The order was written by Trump’s head of the National Trade Council, Peter Navarro, in corroboration with the White House chief strategist Steve Bannon. It is still unclear what the order states, but the effect on trade can be predicted by an examination of the top 20 exports arriving from Mexico to the US.
In January Capital Economics’ chief emerging markets economist Neil Shearing published a chart in a memo to clients graphing the top 20 exports from Mexico according to their 2015 US dollar value.
About 25 percent of Mexico’s total exports to the US, by far the largest slice, came from the auto sector, valued at about $80 billion. The next three items are electrical components, food, and computers, together valued at about $55 billion.
“The upshot, then, is that targeted measures imposed on the vehicle, electronics, and food and beverage sectors would hit Mexico’s economy especially hard,” wrote Shearing. “Similarly, in the event of a blanket tariff across all sectors, producers in these areas would be among the hardest hit.”
In wake of the reports that Trump is on the verge of pulling out of NAFTA the peso is crashing, down over 2.2 percent at 19.2704 as of 12:53pm Wednesday afternoon.