Asian stocks sank and Shanghai shares tumbled to near two-year lows yesterday as US President Donald Trump threatened new tariffs on Chinese goods in an escalating tit-for-tat trade war between the world’s two biggest economies.
Trump threatened to impose a 10 percent tariff on US$200 billion worth of Chinese goods, prompting a swift warning from Beijing of retaliation, as the trade conflict between the world’s two biggest economies quickly escalated.
It was retaliation, Trump said, for China’s decision to raise tariffs on US$50 billion in US goods, which came after Trump announced similar tariffs on Chinese goods on Friday.
China said it will take “qualitative” and “quantitative” measures if the US government publishes an additional list of tariffs.
The trade frictions have unnerved financial markets, with investors and businesses increasingly worried that a full-blown trade battle could derail global growth.
“Trump appears to be employing a similar tactic he used with North Korea, by blustering first in order to gain an advantage in negotiations. The problem is, such a tactic is unlikely to work with China,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities Inc in Tokyo. “A US-China trade spat alone won’t hurt global growth. But there is always potential for Trump to keep increasing his threats, which could have broader implications. Increasing trade has helped growth in emerging markets and this could be negatively affected.”
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.5 percent to its lowest since early February, with losses intensifying through the day as the rout deepened in China.
The Shanghai Composite Index dropped more than 3 percent to its lowest since July 2016, while Hong Kong’s Hang Seng shed 2.8 percent.
“China’s economy has already been clouded by a sharp slowdown in fixed asset investment growth due to the government’s deleveraging drive, a problematic property sector, a mounting debt burden and rising credit defaults,” economists at Nomura Holdings Inc wrote. “The rising risk of a disruptive trade conflict makes a bad situation tentatively worse.”
Japan’s Nikkei lost 1.8 percent, and South Korea’s KOSPI retreated 1.3 percent, while Australian stocks bucked the trend and added 0.1 percent helped by a depreciating currency and an overnight bounce in commodity prices.
The US dollar fell 0.75 percent to ¥109.715 following Trump’s tariff comments.
The yen is often sought in times of market turmoil and political tensions.
China’s yuan skidded to a five-month low. The Australian dollar, often seen as a proxy to China-related trades, brushed a one-year low of US$0.7381.
Crude oil remained volatile ahead of Friday’s OPEC meeting at a time when Russia and Saudi Arabia are pushing for higher output.
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