The “Tariff Man” strikes again

Having hit new highs during April, share prices plummeted in May as the trade war between the US and China took an unexpected turn. Hopes had risen at the end of April that both parties were nearing agreement; however, in May, President Donald Trump announced that he would increase tariffs on over US$200 billion-worth of imports from China from 10% to 25%. 

  • China increased tariffs on US$60 billion-worth of US goods
  • President Trump imposed tariffs on imports from Mexico
  • The S&P 500 Index posted four consecutive weeks of losses for the first time since October 2014

To view the series of market updates through May, click here


Having hit new highs during April, share prices plummeted in May as the trade war between the US and China took an unexpected turn. Hopes had risen at the end of April that both parties were nearing agreement; however, in May, President Donald Trump announced that he would increase tariffs on over US$200 billion-worth of imports from China from 10% to 25%. In addition, the US began to impose the full 25% tariff on a further US$325 billion of Chinese goods.

 “No one emerges as a winner in a trade war” (China’s Commerce Ministry)

Nevertheless, President Trump described his relationship with China’s President Xi as “very strong”, and going on to warn: “China should not retaliate – will only get worse!” Despite this, China increased tariffs on US$60 billion-worth of US goods from 1 June, and the country’s Commerce Ministry commented: “No one emerges as a winner in a trade war”.

In other trade-related developments, the US and Canada agreed that tariffs on steel and aluminium imports would be lifted. Elsewhere, investors were surprised by a shock decision from President Trump to impose a tariff of 5% on imports from Mexico; this tariff will increase at a monthly rate of five percentage points until it reaches 25% in October. President Trump plans to maintain this 25% tariff until Mexico settles the thorny issue of illegal immigration.

The Dow Jones Industrial Average Index fell by 6.7% in May, while the Nasdaq Index dropped by 7.9%. The S&P 500 Index fell by 6.6% and posted four consecutive weeks of losses for the first time since October 2014, according to S&P Dow Jones Indices.

During May, the US added Chinese technology company Huawei to its “Entity List”, meaning that US companies cannot trade with Huawei without a licence, while China announced that it was creating a list of “unreliable” foreign entities.

The Federal Reserve (Fed) maintained its key interest rate at 2.25% to 2.5% and continued its “patient” monetary stance. According to Fed Chair Jay Powell, policymakers believe the current subdued inflationary backdrop is likely to prove “transient”. The rate of unemployment fell from 3.8% in March to 3.6% in April to reach its lowest level since December 1969. However, this decline was largely caused by 490,000 people quitting the labour force during the month. The US economy added a stronger-than-expected 263,000 jobs in April, and average earnings posted an annualised increase of 3.2%.


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