Futures for the S&P 500 index, Nasdaq 100 and Dow Jones industrial average fell sharply Friday morning as President Trump doubled down on his aggressive protectionist shift.
X A day after President Trump's vow to impose steel tariffs triggered market sell-off, Trump tweeted Friday morning that "trade wars are good, and easy to win."
Bottom line? A stock market that has relied on "Good Trump" (tax cuts, deregulation) for outsized gains now faces "Bad Trump" adding to pressure even as the Fed and other central banks continue to shift to a tightening stance after years of ultra-easy monetary policy.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
Global industrial giants such as Boeing (BA), United Technologies (UTX), Caterpillar (CAT) and General Motors (GM) are obvious potential losers, but a trade war could turn much of corporate America into losers, including tech titan Apple (AAPL).
Boeing, United Tech, Caterpillar and Apple are all Dow Jones components, while those four stocks and GM are S&P 500 index members.
S&P 500 index futures fell 0.7% vs. fair value. Dow Jones futures slid 1% vs. fair value. Nasdaq 100 futures fell 1%. That's after the major averages fell more than 1% on Thursday.
Trump Tariff On Steel
On Thursday Trump said he will slap a 25% tariff on foreign steel and a 10% levy on imported aluminum on national security grounds. That boosted steel and aluminum stocks, but the move will mean higher costs for GM and other automakers, Boeing, Caterpillar and many others. That will also mean higher costs for consumers. Boeing shares fell 3.5% while Caterpillar lost 2.85% and United Tech 3.3%. GM tumbled 4%, hitting its worst levels since September. GM reported weak U.S. auto sales Thursday, but much of the stock loss followed Trump's tariff move.
(Apple, Boeing and GM, United Tech and Caterpillar fell 1% or more before the open on the stock market today.)
Worse, several other countries have threatened retaliation, raising the risk of a broader trade war. President George W. Bush backed off his 2002 steel tariffs as the European Union was poised to impose tariffs in response. But Trump, who has consistently supported protectionist measures for decades, appears willing and eager to wage a trade war that could have serious negative consequences for the economy and financial markets.
Retaliation by Canada and Mexico over steel tariffs could poison talks on Nafta. Trump could make good on threats to exit that trade pact, roiling supply chains throughout North America.
China could restrict Apple iPhone sales via a variety of measures, giving a boost to local rivals that have already been grabbing big market share. The European Union could be even more aggressive on U.S. internet giants Facebook (FB) and Alphabet (GOOGL)-unit Google. Apple fell 1.75%, still close to record highs. Facebook and Alphabet lost 1.3% and 2.9%, respectively.
Of course, the Trump tax cuts are only now kicking in, providing a big boost to corporate profits and lifting economic growth. But many of those gains have already been priced into stocks.
Meanwhile, the Federal Reserve is likely headed for three rate hikes in 2018, but investors are worried that policymakers may be more aggressive.
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