Transcript for Tariff threats lead to stock market plunge
A right guys the stock market plunged with both the Dow Jones Industrial Average and the S&P 500 closing. In the biggest decline since January and this comes after trump threatened to increased tariffs on Chinese goods I want to bring in. So may end canes she's the US economics editor for the economist. In our DC bureau some man thanks for being with us I just want you to explain to people why they actually dropped howdy tweets. Impact the market. Sure it so. If you think about these tariff threats essentially tariffs that tax is on. Stuff that American imports is a buying from China so if you think about an American company. They thought stuff on the war today making its way from China to the US right now those companies. Foot that the tariff would be 10% but. What president trump tweets aid is that on Friday that would increase to 25%. Now if you're an important set technically you pay that's how are you content cola kill your Chinese exports and say hey do when it. You want to penny of it's it's it's on you. And that means that these companies have two choices. They can either pay the tar out of their profits in which case you know that that is those profits will be hit and that will hit. The body of guy says. All they can try to pop song these targets to consume is. And the worry is then that basically Americans will decide no we don't want to pay these high prices and up by something else and not because these companies two's. Right so let's just talk about the consumers so that there's a full on trade war how wigs you know the consumers actually feel it. Yet so. I wouldn't set expectations camp we think about the oval tariffs and we think about how important Chinese imports ought to you the US economy and consumer spending. It's not a huge amount just. That said. I think hearts go up it's going to be hot and hot at the businesses to. To carry on sucking up these tax then going to be cost on the American consumed. If you think about attacked so far are any around of a a fifth of the products affected have been on consumer goods the rest of ban on things like pause statement on things like equipment. Those are things like that doesn't think that companies continues themselves in Canadian shield consumers from. Go in full aid if president trumps threats carried out. A much higher fraction of the products hit at going to be stuff that consume is by sifting things like clothes perhaps even small funds. It's going to be much more difficult for them to be to be shielded from that so. Although on aberration the impacts went B dot ADP think about a liberal Americans spending. If you want to buy one of the product affected by these parents. It's very likely that you would see price increases as a result. Our rates a man that makes a lot more sense I appreciate that thanks for joining us the make canes. From the economist.
This transcript has been automatically generated and may not be 100% accurate.