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Why Stock Dropped -- Then Perked Up -- on Monday

By Rich Smith - Updated May 7, 2019 at 8:47AM

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A threat of new tariffs on China upset markets once again.

What happened

Shares of (JD -4.60%), China's second biggest e-commerce e-tailer, dropped more than 10% in early trading Monday before recovering to end the day down roughly 4.5% from the previous close.

You can kind of blame Donald Trump for that.

Over the weekend, President Trump announced plans to raise tariffs on $200 billion worth of Chinese imported goods. There already is a 10% tariff on those products, and a 25% tariff on an additional $50 billion of various Chinese goods. But the president said that because trade talks aren't progressing as quickly as he would like, he may raise the 10% tariff to the 25% level as well -- and perhaps as early as Friday -- in order to pressure China to make a deal faster. On top of that, the president said another $325 billion in Chinese goods could get hit with a 25% tariff.

Chinese flag superimposed on declining stock chart

Image source: Getty Images.

So what

China quickly responded, with a story in the South China Morning Post reporting that, in light of the new threat, it might delay -- or even skip -- planned trade talks in Washington that were to take place this week, sparking the sell-off in Chinese-related stocks such as

But then a Chinese government spokesperson confirmed that Beijing will indeed be attending the talks, even though Chinese Vice Premier Liu He may not be leading the delegation, as he was expected to.

Now what

What happens now is anybody's guess -- although at first glance, it does appear that the ratcheted-up threat of tariffs is having the desired effect.

Probably the real upshot for investors, though, is this: Trump's trade war with China has been running in fits and starts for more than a year now, yet despite multiple warnings that an economic apocalypse was imminent, the economy has not gone off the rails yet. Chances are, things are going to work out fine in the end.

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