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Mr Trump said in a pair of tweets on Sunday that the 10 per cent tariffs already imposed on $200bn of Chinese goods would rise to 25 per cent on Friday, with that rate also “shortly” to be extended to another $325bn of currently “untaxed” goods.
That sent China’s CSI 300 index of major Shanghai- and Shenzhen-listed stocks down as much as 6.1 per cent. The index was down 5.5 per cent in early afternoon trading, on track for its worst day since February 2016.
Other stock benchmarks across Asia Pacific were also lower, with Hong Kong’s Hang Seng dropping 3.3 per cent and Sydney’s S&P/ASX 200 index off 0.9 per cent. Markets in Japan were closed for the last day of a week-long holiday.
S&P 500 futures fell as much as 2.1 per cent, while in Europe futures tipped Germany’s Xetra Dax to drop 1.5 per cent at the open.
“In the near term, investors are rightfully worried since the lingering threat of a trade war weighed on risk assets in 2018, especially in Asia,” said Tai Hui, chief market strategist for Asia Pacific at JP Morgan Asset Management.
“However, in the longer run, given President Trump’s relentless focus on the economy and equity market performance, a market pullback may pressure him to rein in his rhetoric,” he added. “This would be similar to the end of November when the two sides were willing to call a truce and negotiate.”
Chinese stocks were being hit with a “double whammy” of tight domestic liquidity and the renewed threat of an escalating trade war, said Ben Luk, senior multi-asset strategist for global markets at State Street. “The 5 per cent fall you saw this morning — it’s not going to end there. It’s going to continue to go down as long as you don’t see some sort of compromise,” he said. Mr Luk added that US equities could actually end up bearing the brunt of the tariffs’ impact thanks to the increased tax burden placed on US consumers buying Chinese goods. China’s onshore renminbi, which is permitted to trade 2 per cent to either side of a daily midpoint set by China’s central bank, fell as much as 0.9 per cent to Rmb6.7986 per dollar, its lowest level since January. The offshore renminbi, which is not bound by that limit, extended an initial decline to as much as 1.3 per cent, touching a low of Rmb6.8206, following a Wall Street Journal report that Beijing was considering cancelling trade talks with the US slated for this week in the wake of Mr Trump’s tweets.
The Japanese yen, which is perceived as a haven in times of geopolitical uncertainty, was 0.4 per cent stronger against the US dollar at ¥110.66. The latest trade ructions between China and the US also rattled commodities markets. US soyabean futures fell 2.1 per cent while those in China — a major importer of soyabeans — climbed 1 per cent. Oil prices were sliding, with international benchmark Brent crude off 2.1 per cent at $69.34 a barrel and US marker West Texas Intermediate down 2.3 per cent at $60.53.