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China’s Tariff Cut on $75B in U.S. Imports A Stock Market Tailwind

China’s Tariff Cut on $75B in U.S. Imports A Stock Market Tailwind
  • China is slashing tariffs on U.S. imports in a Valentine’s Day gift to the stock market. The Dow hurtles toward 30,000 with a fresh tailwind.
  • It’s been a tense couple years for the economic superpowers. But U.S.-China relations are warming into a trade-positive outlook.
  • Chinese stimulus and a strong state of the union buoyed stocks this week. The stock market has now mostly shrugged off coronavirus fears.

China is getting the U.S. an olive branch for Valentine’s Day.

Beijing will reduce tariffs by half on $75 billion in U.S. imports starting Feb 14. The Chinese Ministry of Finance announced the move Wednesday in a statement on its website. Chinese retaliatory tariffs on hundreds of U.S. goods will be slashed from 10% to 5%, or from 5% to 2.5%.

Stock Market 2020 Outlook Improves

Watch analysts Charlie Bobrinskoy of Ariel Investments, and Jeff Saut from Capital Wealth Planning explain why we’ve got a ten year secular bull market ahead.

It’s more bullish news for Wall Street. The stock market’s benchmark indexes were poised to chart new record highs Thursday morning because of the announcement.

Before the new tariff reductions, Dow futures had already surged to record territory Wednesday evening. Sentiment is strong after a volley of good corporate and economic data, and a very positive State of the Union Address by Mr. Trump.

But this is a nice cherry on top.

And Wall Street needs this kind of macro boost to the 2020 outlook, because not all the news is rosy. Coronavirus remains a big question mark hanging over the stock market.

President Bernie Sanders is looking less likely, at least to JP Morgan Chase CEO Jamie Dimon. But if it does happen, he uses the word “survivable” to describe the impact.

Meanwhile record debt across the board would be a terrible ball and chain to drag through a slowdown in anything – hiring, GDP. And the stock market has set high expectations that must be met to avoid a massive correction.

China Tariff Reductions, An Anti-Recession Tool

The Chinese government is using everything in its toolkit to fight recession and plunging stock values. The coronovirus poses a worse threat to the stock market today than SARS did in 2003. That’s because it’s far more virulent, infecting people at a much faster rate.

But also because China’s economy is much bigger, and more integral to the global economy than it was nearly two decades ago. A sustained loss in Chinese GDP could cascade into broader damage that affects the U.S. stock market.

As a result, China has made aggressive efforts to stem the tide of recession. Perhaps too aggressive at first, or well-meaning, but not well thought out.

In the early stages of the epidemic, the government prioritized secrecy to prevent a panic, but may have hampered a more effective global containment effort.

As coronavirus worries mounted, China’s central bank injected $174 billion in stimulus to grease the wheels. That made the U.S. stock market pop for a couple days. It’s likely kept stocks relatively buoyant amid an onslaught of negative pandemic news.

This article was edited by Sam Bourgi.

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