BANGKOK (AP) — Stock markets around the world, particularly in Asia, fell sharply Monday after President Donald Trump threatened to increase tariffs on imports from China as many investors were banking on an easing in trade tensions between the two countries.
Investors started the new week on a downbeat tone after Trump said via Twitter that he planned to raise tariffs on imports from China to 25% from 10% as of Friday. Complaining that trade talks with China were moving too slowly, he also said he would impose tariffs on $325 billion worth of products from China: all of its exports.
He said: “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
That knocked sentiment immediately in Asia, where the Shanghai Composite index closed 5.6% lower at 2,906.46 after plunging more than 6% earlier in the session. Hong Kong’s Hang Seng index sank 2.9% to 29,209.82.
That selling carried through into the European session and was expected to weigh on U.S. stocks Monday.
In Europe, the CAC 40 in France was down 2% at 5,441 while Germany’s DAX skidded 1.8% to 12,187. London’s markets were closed for a bank holiday. U.S. stocks were also headed for a lower opening with Dow futures and the broader S&P 500 futures both down 2%.
Trump’s comments in tweets Sunday came as a Chinese delegation was due to resume talks in Washington on Wednesday aimed at resolving a tariffs battle that has rattled world markets.
The Wall Street Journal, citing unidentified sources, said China’s government was considering canceling this week’s talks. But a Chinese Foreign Ministry spokesman, Geng Shuang, said Monday that the delegation was still planning to go. He would not say exactly who might attend the talks.
Though Trump’s tweet has weighed on market sentiment on Monday, there is still a prevailing view that a deal will get done.
“Although Trump’s strategy is risky, because the Chinese could refuse to negotiate at gunpoint and decide to walk out on the trade talks, both sides have invested too much political capital in the negotiations to let this happen,” said Raoul Leering, head of international trade analysis at ING.
Elsewhere in Asia on Monday, the A-share index on China’s smaller market in Shenzhen plummeted 7.4 percent. Japan’s markets were closed for a holiday, but the future contract for the benchmark Nikkei 225 index lost 2.4%.
Shares also fell sharply in Taiwan, Singapore, Australia and Indonesia.
The revived tensions over trade pulled oil prices lower. Benchmark U.S. crude shed 36 cents, or 0.6%, to $61.58 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, gave up 21 cents, or 0.3%, to $70.64 per barrel. It rose 10 cents on Friday to $70.85 per barrel.
In currency markets, the euro was flat at $1.12 while the dollar fell 0.3 percent to 110.80 yen.
A month ago, Trump predicted “something monumental” would be achieved in the next few weeks. But last week, Treasury Secretary Steven Mnuchin seemed to temper expectations, suggesting that Washington was willing to “move on” if it can’t get the deal it wants.
A substantive deal would require China to rethink the way it pursues its economic ambitions, abandoning or scaling back subsidies to its companies, easing up on the pressure for foreign companies to share trade secrets and giving them more access to the Chinese market.
Philip Levy, senior fellow at the Chicago Council on Global Affairs and a White House economist under President George W. Bush, said the talks are too complicated for Trump’s high-pressure tactics to work. “The president treats this like we’re haggling over the price of a used car,” Levy said.
Trump has made a priority of shaking up U.S. trade policy. As a candidate for the presidency, Trump raged repeatedly about alleged Chinese perfidy — so much so that a video mashup of him spitting out the word “China” went viral and collected more than 15 million views on Youtube.
Trump charged that previous administrations, gullible and weak, had let China get away with abusive trade practices, accepting empty promises from Beijing and allowing the U.S.-China economic relationship to grow ever more lopsided. As evidence, he cited America’s vast trade deficit with China — $379 billion last year, by far the biggest with any country in the world.
Once he took office, Trump’s relationship with Xi seemed to get off to a good start. The two men shared chocolate cake and amiable conversation at Trump’s resort in Mar-a-Lago, Florida, in April 2017. A few weeks later, China agreed to open its market to U.S. beef, cooked chicken and natural gas, in what Commerce Secretary Wilbur Ross called a “herculean accomplishment.”
The romance faded. In March 2018, the Office of the U.S. Trade Representative issued a report accusing China of using predatory tactics to strengthen its tech companies.
Last July, the Trump administration gradually began slapping import taxes on Chinese goods to pressure Beijing into changing its policies. It has imposed 10% tariffs on $200 billion in Chinese imports and 25% tariffs on another $50 billion. The Chinese have retaliated by targeting $110 billion in U.S. imports.
The fight between the world’s two biggest economies is raising worries about global economic growth. The International Monetary Fund, the World Bank and others have downgraded their forecasts for the world economy, saying the U.S.-China standoff is reducing world trade and creating uncertainty for companies trying to decide where to buy supplies, build factories and make investments.
Trump claims his tariffs are a moneymaker for the United States. But a March study by economists from the Federal Reserve Bank of New York, Columbia University, and Princeton University found that the burden of Trump’s tariffs — including taxes on steel, aluminum, solar panels, and Chinese imports — falls entirely on U.S. consumers and businesses who buy imported products. By the end of last year, the study found, they were paying $3 billion a month in higher taxes and absorbing $1.4 billion a month in lost efficiency.
Nonetheless, the overall U.S. economy has remained healthy. On Friday, the government reported that the U.S. unemployment rate had fallen to the lowest level in half a century. Markets rallied.
But on Monday those gains were reversed as investors reversed course.
“This is a big surprise, given the increasingly positive messages from the various US officials involved in the trade talks in recent weeks,” Tao Wang and Ning Zhang of UBS said in a commentary.
“Certainly the risk of an all-out US-China trade war has increased significantly.”