U.S. stocks ended lower on Friday, with the three major U.S. stock indexes fell over 2 percent, as escalating trade tensions between China and the United States weighed on the market.
Actually, the Dow Jones Industrial Average increased more than 200 points on Thursday during the day as investors' concerns eased after Trump expressed there would be no trade war between the two countries and China announced "comprehensive countermeasures".
However, Wall Street's expectations seem to have fallen flat after U.S. President Donald Trump called for additional tariffs on $100 billion imports of Chinese goods on Thursday night.
The U.S. stock market bubble that's built up in past years will be punctured. The upcoming trade war will intensify Wall Street's anxiety and cause the market to dive.
The reasons that Wall Street objects to Trump's protectionism policy are not only to preserve free trade, but also to keep their profits. In the U.S., almost all large multinationals are listed on the stock markets. Nearly 40 percent of profits of the companies on the S&P 500 are from areas outside of the U.S. These companies' profits will be reduced, or even wiped out, to result in shaking the cornerstone of the stock market once the trade war has started.
As the U.S. mid-term elections are scheduled for fall, Trump is trying to woo electoral support by implementing protectionism. However, his actions are counterproductive to Wall Street's expectations.
Wall Street always has supported free trade and is against Trump's trade protection policies. Although Trump pushed tax cuts and deregulation to hedge Wall Street, it will be harmed in the trade war; the attempt will fail.
Once a trade war starts, multinational companies will have to spend a huge amount to re-build the market because unfriendly trade partners will be rejected.
The flourishing U.S. stock market is driven by a quantitative easing monetary policy that shifts risks to other countries and the interest raising action that draws capital from other markets.
Although the stock market remains booming, the potential risks will destroy the false sense of security.
Trump probably misunderstands situations on Wall Street. Because the U.S. stock market has risen for nine consecutive years from 2008, he may think Wall Street has assembled enough money to satisfy U.S. companies' growth over the next 5 to 10 years.
Maybe, it is time, to Trump's way of thinking, to make good on his promise to revitalize the U.S. manufacturing industry by starting a trade war.
The U.S. stock market will be adjusted as Trump continues to push his policies. President Trump will be given a new title of "bomb disposal expert" to the stock market. But the new "bomb disposal expert" may not be competent.
