Markets slide after Trump threatens to dramatically increase China tariffs.
Financial markets around the world posted declines on Monday after Donald Trump risked jeopardising trade talks with China by unexpectedly saying he would raise tariffs further on Chinese goods this week.
Stocks in Europe and the US fell following a sharp retreat in China, as investors were caught off guard by the president’s tweets accusing Beijing of seeking to renegotiate the deal before further discussions scheduled for this week in Washington.
Stocks on China’s Shanghai Composite Index closed down 5.6% on Monday as investors reacted to Trump’s tweets. Oil prices – a benchmark for global trade – also plunged and the Chinese yuan tumbled.
While markets were closed in London and Tokyo on Monday for public holidays, investors in Wall Street and markets across the EU were rattled. The Dax in Germany closed down 1% on Monday, while the FTSE MIB in Italy fell 1.6% and the CAC 40 in France tumbled 1.2%.
At one point the Dow Jones Industrial Average lost 471 points and the S&P 500 and Nasdaq opened with similarly sharp falls. US firms with significant sales volumes in China – such as Apple and Caterpillar – fell most. But the markets made back most of their losses later in the day. The Dow closed down just 66 points, or 0.3%, as news broke that China was still intending to send a delegation to the US this week to discuss trade.
Markets jitters began after Trump threatened to raise tariffs on $200bn (£153bn) of Chinese goods – from food ingredients to bike parts – that have already been hit with a 10% tariff.
Accusing Beijing of seeking to renegotiate a deal, the US president said he would raise those tariffs to 25% at the end of the week unless Beijing changed its behaviour at the negotiating table. He added that he would target a further $325bn of Chinese goods with a 25% tariff, effectively covering all remaining Chinese imports to the US.
The tweets shifted the mood among investors, who had been boosted by what appeared to be encouraging progress between Washington and Beijing in trade negotiations.
China’s ministry of foreign affairs said on Monday that Beijing was still preparing to send a delegation to Washington but did not say whether the country’s chief negotiator, Liu He, would be attending the meetings.
“As a matter of urgency, we still hope that the US and China will work together to move toward each other … to reach a mutually beneficial and win-win agreement,” Geng Shuang, a spokesman for the ministry, said at a regular news briefing on Monday afternoon.
Han Tan, a market analyst at the financial trading firm FXTM, said stock markets had received a “rude awakening” after several weeks of gains for global equities, helped by optimism over a trade deal and the US Federal Reserve holding back from raising interest rates.
“This development has also served as a reminder of the threat investors still carry when it comes to being blindsided from a set of completely unexpected tweets,” he said.
Trump’s remarks contradicted weeks of optimism about the talks, frequently expressed by the president himself.
In China, state media remained conspicuously silent on Trump’s announcement, with no major media reporting on the tariff threat. Hu Xijin, the editor of the state-run paper Global Times, said he believed Liu was now unlikely to go to Washington for the scheduled talks.
“I think [Liu] will very unlikely go to the US this week. Let Trump raise tariffs. Let’s see when trade talks can resume,” Hu posted on Twitter.
Despite the threat of additional tariffs, analysts said the president’s tweets may be a negotiating ploy to seek additional concessions, or to ramp up the pressure on China to agree a deal favourable to the US.
Raoul Leering, the head of international trade analysis at the Dutch bank ING, said: “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.”
He said Trump had backed down before, notably in negotiations with Canada and Mexico over replacing the North American Free Trade Agreement (Nafta) last year.
However, the concerns have reignited fears among international investors that world trade could slow as a consequence of the higher tariffs, damaging the global economy. The International Monetary Fund has already warned that GDP growth in the majority of countries around the world is forecast to slow this year, as the impact of trade wars serve as a brake on the world economy.
Paul Donovan, the chief economist at the global wealth management arm of investment bank UBS, said: “Investors could regard the Trump Twitter feed as ‘art of the deal’ negotiation tactics. However, if the Chinese do not attend negotiations in the US this week, then the tactic may not work so well.”