The bigger threat to the U.S. economy is still China even after a surprise airstrike in Iraq by the Trump administration that killed a prominent Iranian general, says one congressman.
“I would take a longer-term focus. I don’t know over the next year what would be the most short-term impact [China trade war or aftermath of airstrike]. But the biggest economic threat we face undoubtedly is from China,” Rep. Mike Gallagher (R-WI) said on Yahoo Finance’s ‘The First Trade.’
Gallagher continued: “I am particularly concerned about the Chinese Communist party’s ability to dominate the future of the internet, which is basically the future of the economy. If they make further inroads into 5G — and get some of our allies to go along with their architecture for 5G — we will be in a very dangerous position in a few years from now. We simply cannot allow that to happen.”
At least in the near-term considering the phase one trade deal between the U.S. and China has been solidified, investors will likely now shift their gaze to rising geopolitical risks with Iran and the resulting economic impact.
General Qassem Soleimani was killed in a U.S. drone strike in Baghdad, the Pentagon confirmed Thursday night. Soleimani, a major player in Middle East politics, led a special forces unit of Iran’s Revolutionary Guard, and was reportedly involved in recent U.S. embassy attacks in Iraq and been plotting other attacks against U.S. interests in the region.
Investors wasted no time in starting to price in the risk from higher oil prices, among other geopolitical risks.
The Dow Jones Industrial Average plunged 241 points in early trading. Shares of airlines such as American Airlines (AAL) and Delta (DAL) tanked as oil prices climbed toward $70 a barrel. Oil stocks caught a nice bid amid the higher price for oil, with Chesapeake Energy (CHK) and Chevron (CVX) leading the way.
Most Wall Street veterans are unsure as to the precise impact rising tensions with Iran will have on the U.S. and global economy. Estimates so far range from no impact — thanks to the help from low interest rates — to as much as a 0.5% hit to global GDP growth if an all out conflict ensues.
“I think it’s a little too early to say this news is a game-changer for markets, but it is certainly something that shocks the market because we know markets don’t like uncertainty and this introduces a whole new array of uncertainty,” former J.P. Morgan chief economist Anthony Chan told Yahoo Finance.