Larry Kudlow, President Donald Trump's top economic adviser, said Sunday that US officials expect the Chinese to retaliate for the tariff hike the Trump administration imposed last week. On Friday, the United States increased tariffs on $200 billion of Chinese goods to 25% from 10%.
"We'll see what they come up with," Kudlow said of the expected retaliation.
Dow futures were down 270 points Sunday evening, while S&P 500 and Nasdaq futures were down more than 1%.
Wall Street investors fear an escalating trade war in which both the United States and China continue to raise tariffs. US businesses that import Chinese goods pay the tariffs levied by the United States. Companies either eat that cost, which pinches their profits; or they pass the cost onto consumers, which can hurt demand for their products.
Either way, companies lose. That's why Wall Street has been hoping for an end to the trade war.
Although discussions between the United States and China ended without a deal on Friday, investors were encouraged by positive comments from Trump's trade team. That turned big losses in the stock market into gains Friday afternoon.
Yet it's not clear what the next step will be to revolve a deal.
Beijing has pledged to take "necessary countermeasures" to the tariff increase that went into effect but did not offer specifics on how it would respond. China put tariffs on American agricultural products in response to previous Trump tariffs and stopped buying US soybeans for about six months.
Kudlow said Sunday there is a "strong possibility" Trump will meet Chinese President Xi Jinping at the G20 economic summit in Japan next month.
Last week was horrible overall for US stocks. It was the Dow's worst week since March, and every major index recorded losses.
Trump did little to assuage those concerns over the weekend, tweeting aggressively about the tariffs he is imposing.
"We are right where we want to be with China," he said in one tweet. "Remember, they broke the deal with us & tried to renegotiate. We will be taking in Tens of Billions of Dollars in Tariffs from China."
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