San José, CA – On Friday, August 23, the U.S. stock market opened lower, on the news that China was retaliating to Trump's latest round of tariffs. It then recovered after Federal Reserve Chairman Jerome Powell's speech at the Jackson Hole economic conference. Then Trump tweeted that he was “ordering” U.S. companies to leave China, and stocks dived, with the Dow Jones Industrial Average ending with a loss of more than 600 points or almost 2.5% lower. The broader S&P 500 average fell a bit more than 2.5% percent and the NASDAQ composite, which is heavily weighted towards technology companies, fell 3%.

Earlier in the day China announced that it was increasing tariffs on U.S. exports from 10% to 15% starting September 1 and was resuming the 25% tariff on imported cars on December 15, in response to new U.S. tariffs set to go for those two dates. Stocks fell as investors began to give up hope that China would back down and give in to some of U.S. demands.

Then Federal Reserve (the U.S. central bank) Chairman Jerome Powell indicated that the Fed would do another cut in interest rates at their next meeting in September. But he also cautioned that monetary policy – raising and lowering interest rates – could not counter the escalating trade war between the United States and China. U.S. stocks then made up their losses until President Trump unleashed his tweets.

Trump tweets included statements like “We don't need China” and that “[we] would be better off without them.” He then ordered U.S. companies to “immediately start looking for an alternative to China.” Even though the president has no authority to order businesses to leave China, the fear grew that Trump was going to escalate the trade war even more. Sure enough, later in the day, the administration announced that current 25% tariffs on about half of imports from China would be raised to 30% on September 1. Further, the tariffs on the other half of imports from China that are set to be imposed on September 1 and December 15 would rise from 10% to 15%.

The fact of the matter is that many U.S. and other foreign companies that had offshored production to China had been moving their factories to other countries because of the rapidly rising wages in China. But no other country has the combination of infrastructure such as transportation and ports, large skilled workforces, and a dense supply network of companies providing parts as China.

While the first rounds of Trump's tariffs largely avoided consumer goods, the tariffs set for September and December would include a wide range of consumer goods including cell phones, computers, other consumer electronics, shoes and clothing. These tariffs, which are taxes on imports, will lead to higher consumer prices, causing hardship for working-class families who are already trying to get by on their stagnant wages through working longer hours, taking on more debt and buying cheaper imported goods.

Trump's trade war is also damaging the international economic order set up by the United States after World War II. This modern era of freer trade was meant both to reinforce U.S. economic dominance over the capitalist world as well as the anti-Soviet and anti-socialist alliance headed by the United States. But this free trade regime is unraveling with the rise of other capitalist economies such as Germany and Japan, as well as the integration of socialist China into the world trading system.

In addition to the growing signs of a coming recession, there are increasing concerns on Wall Street that tensions in the capitalist world will increase the chances of a more serious economic crisis.

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