Nobody wants an all-out brawl over trade. Not China. Not the U.S. And certainly not anyone with investments.
Financial-style trash talk has erupted between the U.S. and China. Last week, President Trump got the world's attention when he threatened to levy tens of billions in tariffs on Chinese imports to the U.S. Beijing quickly retaliated with its own tariff threats. The financial fallout was sizable: the Dow Jones industrial average fell 1,400 points.
More from USA Today:
New York Auto Show: GMC pickup is colored black, joining Lexus, Fiat on the dark side
Ask HR: Tell the truth about dating at work. Also, can employers set smartphone rules?
Did mystery train shuttle North Korean leader Kim Jong Un to China?
But then the Dow rebounded Monday, rising nearly 670 points on signs of a thaw in trade disagreements in the form of behind-the-scenes negotiations between the world's two biggest economies.
The up-and-down action is likely to continue as talks between Washington and Beijing go on and signs of success or failure leak out.
Here are 7 things to watch in the trade talks that could move the market, and your 401(k), in the days and weeks ahead.
When it comes to peoples' money, there's a lot to lose. And politicians know it.
Trade wars hinder growth. Tariffs cause the stuff that people buy to rise in price. Protectionist spats also spook investors and can cause stocks to fall. That's why investors don't want to see emotions get overheated, or negotiations to get derailed.
"Cooler heads will prevail," predicts Joe Quinlan, chief market strategist at U.S. Trust. "There's too much at stake. The world has never been more connected via trade and investment. Blowing up peoples' portfolios isn't going to get anyone re-elected. Remember, workers are also consumers and globalization has been hugely beneficial to consumers all over the planet."
News headlines saying negotiations are ongoing, rather than breaking down or making little or no progress, could be the difference between the stock market recovering and tanking, says Chris Zaccarelli, chief investment officer at Charlotte, N.C.-based Independent Advisor Alliance.
"As long as a trade war can be averted through negotiations … (it will) allow the global economic expansion to continue uninterrupted," Zaccarelli says.
Markets will be watching to see if either side concedes some things in order to avoid a longer, more damaging fight. China, for example, could take steps to help the U.S. reduce its $375 billion deficit with Beijing and the U.S. could perhaps back off its most punitive tariffs aimed at China, says Quincy Krosby, chief market strategist at Prudential Financial.
"While Monday's market action suggests a reprieve in trade war headlines, the U.S. side appears ready to keep tariff promises alive if the Chinese side doesn't move decisively towards viable concessions," Krosby says.
One sign of the negotiations taking a less market-friendly turn is if China targets U.S. soybeans with tariffs. The reason: While China accounts for only 8% of overall U.S. exports, according to U.K.-based Capital Economics, nearly a quarter of U.S. agriculture exports go to China, "including 60% of all soybean exports."
So far, China's "counterpunch" to Trump's tariff threat has been relatively weak, as Beijing hasn't targeted U.S. agriculture, says Katie Nixon, chief investment officer at Northern Trust, a financial services firm based in Chicago. "We will be watching closely for an expansion of China's retaliatory threat," she told clients in her weekly market update.
Talk is cheap. But the president, per U.S. law, has a lot of power of his own to impose protectionist trade measures, such as tariffs, if justified by economic or national security reasons. That's a big reason why Wall Street firm Morgan Stanley earlier this year dubbed trade "a true wild card" for markets.
If Trump's motives suddenly shift from a temporary trade dispute and negotiating tactic, Morgan Stanley says, and he begins to send more "demonstrative signals of a broader protectionist push," the markets may become more concerned.
While the main bout features the trade fight between the U.S. and China, Washington is also deep into negotiations on trade with the European Union, as well as Canada and Mexico, the two countries tied to the U.S. via the North American Free Trade Agreement, or NAFTA. Any positive developments on the NAFTA negotiations, a trade deal Trump has long said is bad for America, would be a bullish development, says Quinlan.
Peter Navarro, the White House trade adviser, told CNBC Monday that it "looks like we might get a really good deal on NAFTA."
However, if a tit-for-tat tariff fight with the European Union breaks out that would be a negative sign. After Trump initially announced 25% tariffs on aluminum and a 10% levy on aluminum in late February, the EU threated to slap tariffs on All-American goods such as blue jeans, bourbon and Harley-Davidson motorcycles.
If trade wars are viewed as an economic negative, Wall Street will be watching to see if key business data stays strong or begins to roll over. The stock market is currently priced on the assumption that large U.S. companies will benefit from improving growth in economies around the world.
"To the extent that is threatened by tariffs and protectionist rhetoric, it is likely going to bother the stock market," says Bill Hornbarger, chief investment officer at Moneta Group in Clayton, Missouri.