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Stocks Decline on Trade Tensions and Possible Retaliation by China

Wall Street investors showed their jitters Thursday morning as the impact from trade tensions with China–and possible retaliation– as well as a tariff hike on Chinese goods now set to begin on Friday, gave them pause on what it all might mean for the global economies.

Shortly after Thursday’s trading session began, all U.S. market indices started showing declines. Those declines continued into mid-morning trading. The Dow Jones Industrial Average fell below 26,000 points, down 1.6 percent, or 411.11 points to 25,556.22. The Nasdaq Composite was down 1.7 percent, or 1355.44 points, to 7,806.31. And the S&P 500 fell 1.4 percent, or 40.51 points, to 2,838.91.

Declines in the U.S. market followed declines in the overseas indices. Those declines started with the Asian markets where Hong Kong’s Hang Seng closed down 2.4 percent to 28,311.07, while the Shanghai Composite fell 1.5 percent to 2,850.95. In Japan, the Nikkei 225 Index slipped 0.9 percent to 21,402.13. The major indices in Europe, which haven’t yet ended their trading sessions, also saw declines. The FTSE 100 in London was down 0.5 percent to 7,232.15; CAC 40 in Paris slipped 1.6 percent to 5,328.59; the Dax in Germany was down 1.3 percent to 12,015.43, and the FTSE MIB in Milan was down 1.4 percent to 20,900.78.

The global equity markets began showing some concern earlier in the week after U.S. President Donald Trump said in a pair of Twitter posts on Sunday that the U.S. would hike tariffs to 25 percent from 10 percent on $200 billion of Chinese goods, including footwear. He also threatened to impose a 25 percent tariff on $325 billion of goods–including apparel–from China that’s not currently taxed. With the exception of some goods such as handbags, apparel has been the exception from any tariff hikes. That will change if the U.S. imposes the additional 25 percent on goods that include apparel. Trump tweeted on Sunday that the hike could come “shortly.” On Wednesday, the Federal Register confirmed that the U.S. on Friday would increase tariffs to 25 percent on $200 billion of Chinese goods entering the U.S.

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Many at the time thought that the threats were negotiating tactics to persuade the Chinese delegation, which arrived in Washington Thursday, to finalize a year-long trade deal. That’s after U.S. officials have been stating that talks were proceeding and that an agreement was close at hand.

Then word surfaced that China had walked back on some key points, with Trump confirming on Wednesday that China “broke the deal.” Key issues for the U.S. have been concerns and protections for the transfer of U.S. intellectual property assets. The latest update has China deleting sections of the agreed-upon trade deal that had been negotiated by their representatives.

Trump said in a rally Wednesday night in Florida that the U.S. “won’t back down until China stops cheating our workers and stealing our jobs.” Trump also said that the U.S. could do what it used to do: make products in the U.S. That essentially was a warning to China that the U.S. doesn’t really need to do business with the world’s second-largest economy. The President’s comments followed comments from China earlier on Wednesday that it won’t back down with concessions. If anything, China has indicated that it would retaliate by taking “necessary countermeasures” if the U.S. made good on its threat to hike tariffs.

The concern for many investors is over what it will mean for the global economies in terms of economic growth and the impact on consumers. In the U.S., many firms have said that they’ve either been moving production away from China or, if they are still producing there, trying to absorb some of the costs before having to pass them along to consumers.

The current turmoil in the U.S. markets had many retail and apparel shares also posting declines in the morning trading. Shares of Target Corp. fell 1.3 percent to $74.40, while Walmart Inc. was down 0.6 percent to $99.19. In the off-price category, TJX Stores Cos. Inc. was down 1.1 percent to $53.44, while Ross Stores Inc. fell 0.9 percent to $95.93. Macy’s Inc. saw its shares fall nearly 0.9 percent to $22.53, whiles Kohls Corp. was down 1.8 percent to $67.28. On the specialty retail side, Abercrombie & Fitch Co. fell 2.7 percent to $28.41, and American Eagle Outfitters Inc. slipped 2.3 percent to $22.39.

Among the apparel firms, VF Corp. fell nearly 0.5 percent to $93.26, while Nike Inc. was down 0.9 percent to $82.01 and Guess Inc. saw its shares fall nearly 1 percent to $18.53.

One exception was Tapestry Inc., the parent of the Coach, Kate Spade and Stuart Weitzman brands. Its shares rose 11.1 percent to $34.15 in mid-morning trading. Tapestry on Thursday reported third-quarter results that bested Wall Street’s consensus estimate for adjusted diluted earnings per share by 1 cent. The company said adjusted diluted EPS for the quarter ended March 30 was 42 cents on net sales of $1.33 billion. Net sales, although beating year-ago sales of $1.32 billion, missed Wall Street’s estimates of $1.34 billion.