China leads declines in Asian equities as Trump raises stakes in trade war

Tokyo — A sell-off in Chinese stocks drove Asian equities to a four-month low on Tuesday 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 warned on Monday that Washington would impose a 10% tariff on $200bn of Chinese goods after Beijing’s decision to raise tariffs on $50bn in US goods, which was in retaliation for US tariffs announced on Friday.

Trump said if China increased its tariffs again in response to the latest US move, “we will meet that action by pursuing additional tariffs on another $200bn of goods”.

China warned it would take “qualitative” and “quantitative” measures if the US government published an additional list of tariffs on its products.

The trade friction has 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 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 lost more than 1% to its lowest level since early February, dragged down by a slide in Chinese shares. The index was last down 0.95%.

The Shanghai composite index dropped 1.9% and Hong Kong’s Hang Seng shed 2%.

“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 wrote.

“The rising risk of a disruptive trade conflict makes a bad situation tentatively worse.”

Japan’s Nikkei lost 0.9% and South Korea’s Kospi retreated 0.7%.

Australian stocks bucked the trend and added 0.35%. S&P 500 futures were off 0.8%, pointing to a another down day for Wall Street shares, which slipped on Monday.

The dollar fell 0.6% to ¥109.895 following Trump’s tariff comments. The yen is often sought in times of market turmoil and political tension.

The euro was 0.1% higher at $1.1635. The Australian dollar, often seen as a proxy for China-related trades, shed 0.25% to $0.7406 after brushing a one-year low of $0.7394.

In commodities, crude oil markets remained volatile ahead of Friday’s meeting of the Opec cartel, at a time when Russia and Saudi Arabia are pushing for higher output.

Brent crude futures fell 0.5% to $74.98 a barrel after rallying 2.5% overnight.

Lower-risk assets gained on the latest round of trade threats.

Spot gold was up 0.4% at $1,283.11 an ounce.

The 10-year US Treasury note yield declined to 2.881%, its lowest since June 1.

Reuters