China bearing the brunt of trade tensions

U.S. stocks may be getting slammed by the latest trade tensions, but equities in China are faring far worse.

China’s benchmark Shanghai Composite Index tumbled 4% to a 2-year low on Tuesday and has fallen seven of the past eight trading days. The country’s benchmark index is now below 3,000 and down 18.3% from its recent closing high, putting it very close to a 20% drop that would signal a bear market.

By comparison, the Dow Jones Industrial Average was down triple digits on Tuesday, but for the year it's little changed. Meanwhile the S&P 500 is about 3% higher for the year.

Global markets are volatile as the prospects for a trade war have intensified. Late Monday Trump threatened to hit another $200 billion worth of Chinese products with tariffs. This after President Trump slapped tariffs on $50 billion worth of  goods last Friday. China retaliated Friday afternoon and then on Monday causing more upheaval in the global markets.

On a call with reporters,  Peter Navarro, a White House trade adviser on Tuesday said, “China has more to lose going forward. China sent us $505 billion in goods last year. We sent $130 billion. They feel the numbers are on their side.”

Adding more uncertainty, China is in the midst of a regulatory push to reduce risks in its financial system. China has been trying to reduce its debt, and that has some concerned that growth will falter, making right now a bad time for a stock market correction.

The country has a history of embarking on massive stimulus programs to spur economic growth, particularly when there have been signs of an impending slowdown. The People’s Bank of China governor Zhou Xiaochuan said in March that they would move away from this old growth model, and would rely less on stimulus to boost the economy in the future.

As reported by Reuters, Beijing is looking at becoming more cautious about spending to reduce the risks from a rapid build-up in debt.