In short-term, investor confidence drives the market more than fundamentals, even if fundamentals generally win in the long-term. Unfortunately, that means that the stock market can be heavily influenced by just about anything, including social media.
Though the White House had previously said that the talks between the U.S. and China had been constructive, they apparently broke down at some point. President Donald Trump tweeted that another 10% of tariffs would be enacted on billions of dollars of trade goods coming in from China.
In the early days of the tariffs, many companies were absorbing the costs of these tariffs without marking up their prices. Now that the tariffs have continued, companies are under pressure to transfer the costs to the consumer. Consumers will see costs rising for many material goods, and this can have an overall impact on consumer spending and the economy.
Trump Questions China’s Commitment
In Trump’s tweets, he noted that the Chinese government had promised to make agricultural purchases from the US, and also to stop the flow of Fentanyl into the United States. These are both very important. China has been transitioning its agricultural purchases to Russia and other countries, and Fentanyl deaths have been steadily increasing.
The White House has been talking to China about both these measures extensively, but it appears that talks have fallen through due to a lack of follow through on the other side. Whether that follow through is realistic or even possible is a matter up to some debate.
U.S. Agricultural Sales Take a Hit
Agricultural sales have been falling since the beginning of conflict with China, with soy sales being one of the major industries hard hit. There are farms that haven’t been able to sell their products, and instead these farms have gone to waste.
China has started sourcing these products from elsewhere, which is hurting America’s business model. Trump has been trying to negotiate to get China to start purchasing again. If China starts purchasing again, then the US agriculture market will be able to grow.
China, Fentanyl, and the United States
It’s notable that the White House has asked that China stop Fentanyl exports.
Fentanyl is a highly toxic, dangerous drug that has legitimate medical use as a pain killer. Just a few grains of Fentanyl can be lethal.
In the drug market, Fentanyl is being mixed in with other pain killers because it’s so affordable and effective to produce. Unfortunately, it’s quite often deadly, and has led to many overdoses.
One of the requests Trump has made is for the Chinese government to stop Fentanyl exports. Fentanyl is coming primarily from China and Mexico. In Trump’s tweet, he slammed the Chinese government for not doing enough to stop Fentanyl.
On the other hand, Fentanyl is difficult to stop. Even if it was ceased from China, it can be developed in India. China has taken some notable action to stop Fentanyl production and transport, but as an illegal substance, there’s a limit on what can be done.
The Impact on the Stock Market
The Dow fell based on these tweets alone, but it may not actually come into fruition. Trump has threatened tariffs before, and many of these threats are just designed to pressure China into action. Tweets have an interesting effect on the market, and it’s possible that Trump will tweet more in the future regarding these plans. People should follow these tweets to learn more, especially news traders.
When the Dow is influenced by social media, it’s an excellent opportunity. It’s artificial. Generally, the Dow will bounce back right away after an event like this, unless it’s part of a larger, more encompassing issue. At the least, it’s usually not something to be too concerned about. The smaller rises and falls of the Dow even out in the end, and long-term trends are all that matter.