Advertisement

SKIP ADVERTISEMENT

What’s Next for Stocks After the China Tariffs: DealBook Briefing

Credit...Drew Angerer/Getty Images

Good Thursday Here’s what we’re watching:

• Tariffs will test investors’ resolve.

• Trump on Tariffs: “If they charge us, we charge them.”

• The stock market is proving Gary D. Cohn right.

• China tech stocks are also tumbling

• Dropbox has priced its I.P.O.

Get this in your inbox each morning. Sign up here.

An unorthodox action by President Trump unsettles investors, but after a freakout, their optimism returns and the stock market moves higher.

But will investors shrug off President Trump’s tariffs on China?

The stock market plunged Thursday after Mr. Trump announced the measures against China. Since mid-February, when the Trump administration laid out its case for steel and aluminum tariffs, the S.&P. 500 is down 3.2 percent. The Dow Jones industrial average is off nearly 5 percent.

Until now, investors might have thought they could take Mr. Trump’s trade pronouncements in stride. After all, many countries have won a reprieve from the steel and aluminum tariffs. And as Edward Alden of the Council on Foreign Relations wrote Thursday of the anti-China measures, “The administration is delaying the action to solicit comments from affected U.S. companies, and it is quite possible the final tariffs will fall short of the threats.”

Just as the Trump administration has stepped back from quickly imposing the steel and aluminum tariffs, it may soften its stance if China suggests that its open to negotiations. The world could relax.

But China may not budge. As our colleague Steven Lee Myers reports, President Xi Jinping has so far managed to navigate Mr. Trump’s rhetoric while maintaining a strong nationalist image at home. Yet Mr. Trump’s tariff announcement, along with moves perceived by the Chinese as humiliating, may prompt China to retaliate with force.

Investors would then scramble to quantify the economic repercussions. They might not be terrible.

Some American companies, like computer chip makers, get substantial revenue from China. But on average, companies in the S.&P. 500 index derive a small share of their sales from the country.

And some investors may take a long view, believing that U.S. companies have long been treated unfairly in China. A trade fight that eventually relaxes some of those disadvantageous conditions could bolster the long-term prospects of those firms. And if the U.S. is able to recruit other countries to its cause, China may relent.

Still, much could go wrong. A true test of investor sentiment will come if China fights back. Markets could fall further, creating a financial chain reaction that dampens the wider economy. A lot would depend on how Mr. Trump responds to Chinese actions. Would he up the ante?

“It’s genuinely hard to predict how this will turn out,” said Scott Kennedy, an expert in Chinese trade at the Center for Strategic and International Studies, “whether one side will back down or whether it will spiral into a trade war.”

— Peter Eavis

Image
Credit...Thomas White/Reuters

Here are the details:

• The data-storage and collaboration company sold 36 million shares at $21 apiece, its expected range of $18 to $20 a share.

• At that price, the offering raised $756 million.

• At $21 a share, the company has a market value of gave Dropbox a market value of $9.2 billion.

The context

The demand for Dropbox’s shares suggests investors overcame any concern about daunting competition from the likes of Microsoft, Google and Amazon, all of which provide cloud storage services. A successful debut could pave the way for other unicorns to soon go public.

Image
Credit...Chandan Khanna/Agence France-Presse — Getty Images

President Trump said he would impose about $60 billion worth of annual tariffs on Chinese imports as the White House moved to punish China for what it says is a pattern of co-opting American technology and trade secrets and robbing companies of jobs and billions of dollars in revenue.

The tariffs will target 1,300 lines of Chinese goods — everything from shoes and clothing to electronics — the NYT reports administration officials said.

Mr. Trump, the officials added, will also direct the Treasury Department to impose restrictions on Chinese investment in American technology companies, a practice that they said the Chinese government uses to develop its own “national champions” in cutting-edge industries like A.I. and autonomous vehicles.

“The end objective of this is to get China to modify its unfair trade practices,” Everett Eissenstat, the deputy director of the National Economic Council, told reporters.

Peter Navarro, the director of the White House National Trade Council and an architect of the measures, cast the tariffs as part of a seminal shift in how the U.S. views China. Rather than trying to draw it into the rules-based international economic order — a policy that dates back to Richard Nixon and Henry Kissinger — the U.S. now regards China as a strategic competitor, bent on eroding American security and prosperity.

— Mark Landler and Jim Tankersley

Image
Credit...Brendan Smialowski/Agence France-Presse — Getty Images

Before he said he was leaving his White House position earlier this month, Mr. Cohn reportedly warned that protectionist trade policies could jeopardize the stock rally that has taken place since Donald Trump became president. After Mr. Trump announced tariffs on steel and aluminum, the stock market slid, but soon recovered those losses, reassuring the president that his decision to introduce tariffs was right.

On Thursday, the Trump administration announced trade restrictions against China. The news appeared to weigh on markets. So, how have stocks done since important dates in the trade skirmish?

One important milestone was the Commerce Department’s announcement last month that suggested the Trump administration was serious about introducing steel and aluminum tariffs. The S.&P. 500 index is down 2.3 percent since the day before that announcement. Mr. Trump actually announced plans for those tariffs on March 1. The S.&P. 500 is down 1.7 percent since Feb. 28.

The Dow Jones industrial average has done a lot worse, however. It is down 3.7 percent since the Commerce Department’s announcement, and 3.1 percent since Mr. Trump announced his intentions. The decline encapsulated how trade tension might hurt specific businesses, in particular, Boeing’s.

— Peter Eavis

Image
Credit...Ruth Fremson/The New York Times

Much of the Dow’s underperformance can be traced to the aircraft maker’s stock.

The Trump administration’s trade policies have hit Boeing, the most-heavily weighted stock in the Dow, particularly hard.

Aluminum makes up about 80 percent of the weight of most commercial aircrafts, according to Brooke Sutherland and David Fickling of Gadfly. That means tariffs on imported aluminum would likely raise Boeing’s costs more than its competitors. Boeing also views China, the main target of the Trump administration’s protectionist trade policies, as an important growth market. The country is set to overtake the U.S. as the biggest aviation market by 2022, Ms. Sutherland and Mr. Fickling write.

China could target Boeing if the country decides to retaliate against the U.S.

Boeing is down 3.6 percent today, shaving more than 80 points off the blue-chip index. Since the Commerce Department released its report calling for tariffs on imported steel and aluminum, the stock is down 8.7 percent, worth more than 200 points off the Dow.

Boeing drove the Dow higher for much of Mr. Trump’s presidency, more than doubling during his first 12 months in office.

Boeing’s climb has had an outsized impact on the Dow. The index is price-weighted, meaning that the higher priced stocks have a bigger pull on the index.

MoneyBeat’s Ben Eisen noted that at the end of January, the stock accounted for 9.4 percent of Dow, up from 6 percent a year earlier. By comparison, Boeing makes up just 0.8 percent of the market capitalization weighted S.&P. 500.

Image
One of Alibaba’s Hema stores in Shanghai, China.Credit...Qilai Shen/Bloomberg

Chinese tech stocks are also tumbling.

Shares of Alibaba are off 4.2 percent, Tencent 5 percent and Baidu 4.3 percent in the wake of the Trump administration’s plan to impose about $60 billion worth of annual tariffs on Chinese imports.

That is much worse than their American counterparts. Amazon, Facebook and Google’s parent Alphabet are down between 1.2 percent and 2.2 percent by comparison.

Shares of Baidu, Alibaba and Tencent — collectively known as BAT — have soared over the past year, pushing their combined market value above $1 trillion.

As these companies have grown, so have their ambitions. All three have moved to expand beyond their core business and home market and have aggressively invested in Americantech start-ups to help them do so.

China’s largest internet companies — the BAT plus the e-commerce company JD.com — have invested $5.6 billion in 48 tech deals in the United States over the past two years, according to CBI Insights data via CNBC.

Such investments have raised concerns in the United States. The Trump administration officials said the Chinese government uses these investments to develop its own “national champions” in cutting-edge industries like A.I. and autonomous vehicles. As part of the China tariffs, the Trump administration plans to place restrictions on Chinese investment in American technology companies.

Shrugging off hikes by the Federal Reserve and the Hong Kong Monetary Authority this week, the Bank of England maintained its key interest rate at 0.5 percent today.

Two members of the central bank’s monetary policy committee called for an immediate rate increase, but the majority of the committee did not see the need for a hike at this time. Most economists expect the Bank of England to raise rates in May, when it releases its latest quarterly projection for inflation.

In the minutes from the committee’s latest meeting, the central bank said that there had been “few surprises” in recent economic data and its February projections for inflation appeared “broadly on track.” The bank said that the May inflation report would allow the committee to “undertake a fuller assessment of the underlying momentum in the economy, the degree of slack remaining and the extent of domestic inflationary pressures.”

— Chad Bray

Image
Credit...Josh Edelson/Agence France-Presse — Getty Images

After days of questions and criticism about his silence, the Facebook co-founder and C.E.O. posted a statement and gave a series of interviews. (Sheryl Sandberg offered a statement, too.)

What he promised: to investigate apps that had access to large amounts of Facebook data, to restrict developers’ data access and to show users how to revoke app permissions.

Highlights from his interviews:

• To CNN: “I’m not sure we shouldn’t be regulated,” Zuckerberg said. “There are things like ad transparency regulation that I would love to see.” (He also made ad transparency promises to Wired.)

• To the NYT, about Facebook’s business model: “I don’t think the ad model is going to go away, because I think fundamentally, it’s important to have a service like this that everyone in the world can use, and the only way to do that is to have it be very cheap or free.”

• On why it took so long for him to respond, compared with other tech C.E.O.s: “I know that there was a lot of pressure to speak sooner, but my assessment was that it was more important that what we said was fully accurate.”

• On #DeleteFacebook: “I don’t think we’ve seen a meaningful number of people act on that, but, you know, it’s not good.”

Peter Eavis’s take: Missing from his response was a full explanation of why Facebook took so long to disclose the Cambridge Analytica misuse of data. The company found out in 2015. Why wasn’t the abuse disclosed then?

Elsewhere in the Facebook orbit: A guide to deleting your account; idealistic reasons not to. Why former employees feel emboldened to criticize. And Cambridge Analytica is being accused of receiving a foreign leader’s private emails, perhaps from Israeli hackers. (It says it didn’t.)

Image
Credit...Photographs by Erin Schaff for The New York Times

It’s here. A $1.3 trillion, 2,232-page pact between Republicans and Democrats that needs to be signed into law by midnight Friday to avoid another government shutdown. But can Congress pass the bill — and will President Trump support it?

What’s in there:

A patch for the “grain glitch” in the recent tax overhaul that hurt corporate farms and helped farming co-ops

• A pathway to funding for the New York Gateway project, something Mr. Trump has opposed

• $1.6 billion, with strings attached, for a border wall with Mexico

• Nothing to protect Dreamers or to shore up the Affordable Care Act

Republicans like the senators Rand Paul and John Kennedy are unhappy. So too is the president, who wanted far more for his wall. (He’s on board for now.)

• How George Nader, now a cooperating witness in Robert Mueller’s investigation, sought to influence a top Republican fund-raiser on behalf of Saudi Arabia and the United Arab Emirates. (NYT)

• Among the companies lined up to meet the Saudi delegation in the U.S.: Boeing, JPMorgan Chase, and Apple. (Bloomberg)

• The F.B.I. investigated Jeff Sessions for perjury last year. Andrew McCabe, now fired, authorized it. (NYT)

• Reince Priebus, Don McGahn and Ivanka Trump supported a White House push for nondisclosure agreements, some while knowing they would be unenforceable. (NYT)

• John Kelly was furious over leaks about Mr. Trump’s briefing materials for his call after President Vladimir Putin’s election victory, which included the admonition “DO NOT CONGRATULATE.” (Politico)

Image
Credit...Erin Schaff for The New York Times

Adding a quarter of a percentage point to the benchmark interest rate, as expected, Jay Powell said, “There is no sense in the data that we’re on the cusp of an acceleration of inflation.”

The Fed is now expected to raise rates three times this year, three times next year and twice in 2020. But there’s a bigger issue, as Neil Irwin of The Upshot points out:

Those economic projections signal that Mr. Powell and his colleagues believe they can keep running the economy a little hot with mainly good results. But they seem to believe that a more aggressive shift toward higher interest rates will be needed to keep that benign future intact.

Critics’ corner: Justin Lahart of Heard on the Street writes about inflation, “The Fed’s view doesn’t jibe with the recent hopes and dreams of some investors.” And Tom Buerkle of Breakingviews writes, “The big questions are yet to come. Powell is smart to want maximum flexibility to address them.”

Image

It shows the vehicle in Tempe, Ariz. didn’t try to swerve from a woman walking her bike across the street, the WSJ says. And the human behind the wheel was looking down for about 5 seconds before it hit her.

More from Greg Bensinger and Tim Higgins of the WSJ:

“This video is damning for Uber,” said Todd Humphreys, an associate professor at the University of Texas at Austin whose research area is robot-perception systems. “This appears to have been a serious failure of the Uber perception system.”

The stakes for Uber remain high, as Goldman Sachs analysts recently pointed out, since self-driving cars were part of its route to profits. And car insurers are watching closely, too.

Elsewhere in Uber: The company withdrew an offer to make Assaf Ronen its new product head, after discovering he had left Amazon earlier than he said. Wall Street is fighting to get into Uber’s big debt deal.

Elsewhere in tech: Tesla shareholders approved a $2.6 billion stock options grant to Elon Musk. The Senate passed a sex-trafficking bill opposed by some tech companies. And Dropbox raised its I.P.O. price range.

Image
Centrum multivitaminsCredit...Graham Hughes/The Canadian Press, via Associated Press

The winning bid in the auction for the unit could amount to as much as $20 billion. Gaining brands such as Advil and Centrum multivitamins would be a big success for GlaxoSmithKline’s C.E.O. of nearly a year, Emma Walmlsey, who has favored a diverse product lineup.

Reckitt Benckiser withdrew from the fray yesterday, with its C.E.O. saying, “An acquisition for the whole Pfizer consumer health business did not fit our acquisition criteria.”

The deals flyaround

• Meredith plans to sell Time, Sports Illustrated, Fortune and Money. (NYT)

• Steve Wynn intends to sell some or all of his 12 percent stake in Wynn Resorts. (WSJ)

• Matillion, a cloud data software maker, has raised $20 million in a new round from investors like Sapphire Ventures and Scale Venture Partners, the company tells us.

• Elliott Management is reportedly considering backing a spinoff of Telecom Italia’s fixed-line network. (Bloomberg)

• As others have fled, Sycamore Partners has dived profitably into traditional retail. (WSJ)

Image
Credit...Glenn Harvey

Newly minted virtual currency moguls are worried about the I.R.S. as the April 17 tax deadline looms. Many are libertarians who don’t like having a central government, let alone paying taxes to one. Others are simply newbies who didn’t realize that you have to pay taxes on capital gains, even on digital money.

More from Kevin Roose’s latest column:

Ms. Walter said she had seen clients with cryptocurrency gains as large as $400,000 who did not withhold taxes during the year and subsequently lost money trading. “Now they’re stuck with these huge tax bills, and they don’t have the capital to pay it.”

Elsewhere in crypto: Bitcoin is at $8,999. Some blockchains are better than others. And Britain has formed a task force to study cryptocurrencies.

Image
Jimmy Iovine, right, with his fellow Beats founder Dr. Dre.Credit...Joe Pugliese/August, via HBO

Jimmy Iovine is formally stepping down as the head of Apple’s music division. (WSJ)

• Twitter’s chief information security officer, Michael Coates, is leaving. (The Verge)

• The Noble Group’s founder and chairman, Richard Elman, is retiring, leaving the commodity trader with a battered stock price and high amounts of debt. (WSJ)

• Swiss prosecutors have opened a criminal investigation into the taxes of the French luxury group Kering, part of a case that started in Italy. (NYT)

• Abu Dhabi is consolidating two of its leading sovereign wealth funds into a $200 billion vehicle. (FT)

• What Bill Voge disclosed before his sudden departure as chair of Latham & Watkins: sexually explicit messages to a woman he approached on behalf of a Christian men’s group, and threats to her husband to have her thrown in jail. (Law360)

• Gary Barber was fired from MGM after a disagreement over how to compete with Netflix, unnamed sources said. (WSJ)

• Jamie Dimon earned 364 times as much as the median JPMorgan employee last year. (WSJ)

.

We’d love your feedback. Please email thoughts and suggestions to bizday@nytimes.com.

Advertisement

SKIP ADVERTISEMENT