Has Trump triggered a $754 billion May market meltdown?

Global markets are in turmoil with Donald Trump rattling investors by threatening to slap a 25% tariff on over half a trilion US dollars worth of Chinese imports. Here's how it could affect ASX investors.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Global markets are in turmoil on the first trading day of the week with US President Donald Trump rattling investors by threatening to slap a 25% tariff on over half a trilion US dollars worth of Chinese imports.

China is considering cancelling trade talks with the US scheduled for later this week, according to Bloomberg, and a "no deal" outcome between the two biggest economies could trigger weeks of market mayhem as investors had already priced in a positive result.

What's worse is that it may not be so easy for both parties to reach a deal now as Trump had potentially removed any face-saving way for the Chinese to consummate a trade deal.

Impact of Trump's tariff threat

The news sent the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index tumbling 1% to 6,271 points this morning as US stock futures took a beating with the S&P 500 and Dow Jones Industrial Average predicted to open nearly 2% weaker later this evening.

Stocks most leveraged to global growth are taking the brunt of the sell-off. Energy stocks like the Santos Ltd (ASX: STO) share price and Oil Search Limited (ASX: OSH) share price have lost at least 1.5% each, while big miners like the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price have each shed around 1% at the time of writing.

But if this drags on, all sectors are likely to be in for a tough time and we could quite easily see a 10% plus pullback in the ASX 200, if not more.

New tariffs on US$525billion of Chinese imports

Trump is frustrated with the slow progress of the negotiations between China and the US even though US trade officials have indicated that talks so far have been "productive". China's top trade negotiator, Liu He, was supposed to lead a delegation to the US to finalise the remaining sticking points to an agreement that would see the US and China remove all tariffs they've imposed against each other.

Trump had put a 10% tariff on US$200 billion worth of Chinese goods last year and was meant to lift this tariff to 25% by the start of this calendar year. He has twice postponed the increase but said in a Tweet yesterday that the tariffs were going up on Friday.

He's further threatening to slap similar tariffs on another US$325 billion in imports from the Asian nation, which were not targeted initially although he didn't give a date when this will begin.

Start of the seasonal May market meltdown?

China's leader Xi Jinping will not want to be seen as being browbeaten into a deal – there's too much national pride at stake. This increases the risk that China could issue a harsh response later today (no response so far from the Asian nation).

Global markets have been waiting for a trigger to start a market pullback that typically happens during this time of the year. Remember the market adage "sell in May, go away"?

The bulls have so far been able to get the upper hand but all this will change if the market believes a trade deal cannot be reached this month.

ASX investors should keep a close eye on this issue as things could get really ugly quickly.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Fallers

A worried man holds his head and look at his computer.
Share Fallers

Why Graincorp, Light & Wonder, Orica, and Wildcat shares are falling today

These shares are having a tough time on Thursday. But why?

Read more »

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today
Share Fallers

Why Insignia, Light & Wonder, Mineral Resources, and Nuix shares are sinking today

These shares are having a difficult time on hump day. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Endeavour, Global Data Centre, OFX, and Paladin Energy shares are dropping today

Why are these shares under pressure today? Let's find out.

Read more »

A man sits wide-eyed at a desk with a laptop open and holds one hand to his forehead with an extremely worried look on his face as he reads news of the Bitcoin price falling today on his mobile phone
Share Fallers

ASX 200 uranium stock alert: Paladin Energy shares just crashed 29%!

Paladin Energy shares are under intense selling pressure on Tuesday.

Read more »

A woman with a sad face looks to be receiving bad news on her phone as she holds it in her hands and looks down at it.
Share Fallers

Why Champion Iron, Endeavour, Infomedia, and Resolute Mining shares are sinking today

These shares are starting the week in the red. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Arcadium Lithium, Block, Jumbo, and Mineral Resources shares

These shares are ending the week in the red. Why are investors selling them?

Read more »

A woman with short brown hair and wearing a yellow top looks at the camera with a puzzled and shocked look on her face as the Westpac share price goes down for no reason today
Share Fallers

Why Clearview, NAB, Resolute Mining, and Westpac shares are dropping today

These shares are under pressure today. But why?

Read more »

A man looking at his laptop and thinking.
Bank Shares

Why is the Bendigo Bank share price tanking today?

There are a few things that could be driving this bank lower today.

Read more »