Markets plunge as Trump threatens new China tariffs

Markets plunge as Trump threatens new China tariffs

Kerry Wise
May 7, 2019

Following U.S. President Donald Trump's tweet on Sunday threatening to substantially increase tariffs on Chinese products, Beijing's reacted with uncertainty over the trade talks scheduled for Wednesday, May 8 in Washington this week.

China's foreign ministry said that officials were still planning to travel to the usa for the next round of talks - but was unable to confirm when amid signs that a delay is now being considered.

Chinese government offices did not immediately respond to requests for comment on Trump's suggestion the US would raise import taxes on $200 billion in Chinese products to 25% from 10% as of Friday. He also warned that 25% tariffs could be slapped on a further $325bn of goods in future - covering roughly all Chinese imports.

The tweet, a follow up of a series of tweets a day earlier, is indicative of the fact that Trump does not want to wait any longer on trade negotiations with China and he is increasingly believing that Beijing deliberately wants to delay the trade talks. Hopes for a trade deal and the US Federal Reserve backing away from raising interest rate have powered financial markets to the highest levels for six months - making them more vulnerable to bad news.

Negotiations about tariffs have been one of the remaining sticking points between the two sides.

"His move injects major uncertainty into negotiations, which now face a rising risk of an extended impasse - perhaps even through the USA presidential election", Michael Hirson, head of China and Northeast Asia at the Eurasia Group, wrote in a note on Sunday. China is also said to be considering delaying a trip by its top trade negotiators to Washington after Trump's threat of steeper tariffs.

"Trump has taken the proverbial sledgehammer to the walnut this morning and the only two words likely to be on the minds of traders and investors this week are "trade talks", said OANDA senior market analyst Jeffrey Halley.

The Topix index of the nation's equities, which hasn't traded since April 26, is poised for a delayed reaction to Monday's market turmoil after U.S. President Donald Trump abruptly re-escalated the trade war with China.

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Fears about a further escalation caused a slump in world stock markets towards the end of previous year. "We suspended the 25% tariff to 10%", S&P Global Platts reports.

The Chinese government has yet to officially comment on Mr Trump's tweets. "China trade talks", said Lu Ting, chief China economist at Nomura Holdings Hong Kong.

In Hong Kong, the Hang Seng Index fell by around 3.2% or 1,000 points as fears continued that China would call off trade talks after Trump's announcement on Sunday.

Optimism that China and the U.S. would reach a deal on trade helped make Shanghai equities the hottest in the world this year, although lackluster corporate earnings and concern Beijing is easing back on stimulus dragged the Shanghai Composite Index down almost 6 percent from its April high before Monday.

Despite Mr. Trump's hard-line position on trade, the trade deficit with China has grown under his administration, Census figures show.

The motorcycle manufacturer said European Union and China tariff-related costs were $23.7 million in 2018 and are expected to range between $100 million and $120 million in 2019.

Trump wrote on Twitter that he planned to more than double tariffs on $200 billion (€178.6 billion) of Chinese goods on Friday and eventually raise tariffs on all imports from China to 25%. China shd have been expecting the Trump threat in final stages, could have compromise in back pocket ready. Bond prices rose sharply, sending yields lower, and safe-play stocks like utilities, real estate companies and makers of consumer products held up much better than the rest of the market.