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China Retaliates With Tariffs on $60 Billion of American Goods, Apparel Stocks Fall

Trade tensions between the U.S. and China escalated on Monday as China made good on its promise of retaliation, hiking tariffs to 25 percent on $60 billion of U.S. goods imported to the country beginning on June 1.

China’s decision to hike tariffs came in response to U.S. President Donald Trump’s move on Friday to raise tariffs to 25 percent from 10 percent on $200 billion of Chinese imports. Through two Twitter posts last week, Trump threatened not only the recent increase, but also a 25 percent tariff on another $325 billion of goods not currently being taxed. The Trump administration disclosed a day later that the increase was due to China backpedaling on agreed terms on a draft of a trade agreement. Key areas of contention for the U.S. have been centered on intellectual property rights.

The process for laying the groundwork to add tariffs to a new set of goods is reportedly underway. As for which categories will be impacted, that is expected to be disclosed this week, perhaps as early as Monday afternoon.

While the trade talks continue, the situation has deteriorated despite prior comments from representatives of both countries that an agreement was close. Chinese President Xi Jinping sent Vice Premier Liu He to lead a delegation to Washington last Thursday to continue talks, but that ended without a deal. Both President Trump and President Xi are expected to meet next month at the G-20 Summit in Japan.

Trump on Monday tweeted: “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be force to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!”

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In the U.S., equity markets began selling off at the start of the day’s trading session. In early morning trading, the Dow Jones Industrial Average dropped 2 percent, or 520.38 points, to 25,421.99. The Nasdaq Composite Index fell 2.7 percent, or 212.01 points, to 7,705.84, while the S&P 500 fell 2.0 percent, or 60.70 points, to 2,820.70.

Almost all stocks in the retail and apparel universe follow the trading trend. Among the retailers, American Eagle Outfitters Inc. fell 4.3 percent to $20.85, while Abercrombie & Fitch Co. was down 3.2 percent to $26.69 and Gap Inc. declined 3.1 percent to $23.60. Of the off-pricers, Burlington dropped 3.4 percent to $159.85, while TJX Cos. Inc. was down 2.4 percent to $52.96. In the department store sector, Dillards Inc. dropped 3.1 percent to $64.07, while Macy’s Inc. fell 1.4 percent to $22.14. Among the discounters, Target fell 2.7 percent to $72.60, while Walmart Inc. declined 1.2 percent to $100.66. Among the vendors, G-III dropped 5.7 percent to $35.40, Tapestry saw a 4.3  percent decline to $30.88 and Ralph Lauren Corp. fell 4.2 percent to $119.04.

Chinese firm Alibaba, which trades on the Big Board, wasn’t immune either, dropping 4.5 percent to $170.01.

And it wasn’t just U.S. stocks that saw declines. The sell-off was global, with some overseas indices also in decline. The Nikkei 225 in Japan fell 0.7 percent to 21,191.28. European Indices, where the trading sessions are still open, also saw declines. The FTSE 100 in London was down 0.5 percent to 7,168.97; the CAC 40 in Paris was down 1.1 percent to 5,266.89, the FTSE MIB in Milan was down 1.2 percent to 20,621.83 and the Dax in Germany was down 1.7 percent to 11,860.92.