The uneasy calm that had descended on Asian markets was shattered yesterday after the US threatened to hammer China with tariffs on a further $200bn of imports, ratcheting up a trade war between the world’s top two economies.
Washington’s announcement comes just days after the two sides exchanged tit-for-tat measures on a range of goods worth tens of billions of dollars, with US Trade Representative Robert Lighthizer blaming Beijing.
“As a result of China’s retaliation (to Friday’s measures) and failure to change its practices, the president has ordered USTR to begin the process of imposing tariffs of 10% on an additional $200bn of Chinese imports,” he said in a statement.
China said it was “shocked” and warned it would impose countermeasures “to safeguard the core interests of the country and the fundamental interests of the people”.
Tuesday’s announcement is the latest move by Donald Trump in his America First protectionist agenda that has also seen the US target Canada, the European Union and Mexico, who have also hit back with their own measures, sparking global trade war fears.
Trump has previously warned he would hit a total of $450bn in Chinese goods, which essentially accounts for all the country’s US-bound exports, citing its unfair practices and intellectual property theft.
While observers have been nervously expecting the next salvo in the trade row, the news jarred markets, which had enjoyed some stability this week from upbeat US jobs data and hopes for the upcoming earnings season.
“This latest story will serve as a reality check for the market, reminding investors to reconsider how aggressive they want to be,” Michael O’Rourke, chief market strategist at JonesTrading, told Bloomberg News.”Regardless, the $200bn in potential additional tariffs is not a surprise.
The president made everyone well aware of them.”
The news sent risk assets into a nosedive.
Tokyo’s Nikkei ended 1.2% lower, with exporters hurt as the safe-haven yen climbed against the dollar.
Hong Kong lost 1.3% and Shanghai ended off 1.8%, while Seoul shed 0.6% and Singapore gave away 0.9%. Sydney retreated 0.7%, while Taipei and Jakarta were also sharply lower.
Stephen Innes, head of Asia-Pacific trade at OANDA, said “nothing is written in stone and the tariffs are not set to take effect until September” but the move was still “a very sobering reality check as to just how fragile sentiment around trade war rhetoric is”.
But Ray Attrill, head of forex strategy at National Australia Bank, added that he saw the move as “a negotiating tactic designed to get China back to the negotiating table on trade”, adding that higher tariffs would “inevitably impose significant burdens on US consumers”.
While the dollar slipped against the yen, the rush for safety saw the greenback pile ahead against higher-yielding currencies, with the South Korean won down 0.3%, Indonesian rupiah shedding 0.1% and Thai baht 0.2% lower.
The Chinese yuan shed 0.4%, with many warning that Beijing stands to suffer most from a full-blown trade war, which comes just as its economy shows signs of stuttering.
Observers will be keeping a close eye on the release Friday of Chinese trade data, which will give an idea about how the row has affected the country’s exports so far.
Oil prices also sank on concerns that a trade war could hit demand for the commodity.
In Tokyo, the Nikkei 225 closed down 1.2% to 21,932.21 points; Hong Kong — Hang Seng ended down 1.3% to 28,311.69 points and Shanghai — Composite fell 1.8% to 2,777.77 points yesterday.
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