Asian Markets React to Trade Tensions
Asian markets experienced a significant decline on Monday following a renewed threat from US President Donald Trump to escalate the trade war with China. The tension was reignited when Trump threatened to impose 100% tariffs on Chinese goods, sparking concerns about the potential impact on global trade and financial stability.
Despite the initial negative reaction, there was a slight improvement in market sentiment after Trump adopted a more conciliatory tone on Sunday. He described Chinese leader Xi Jinping as “respected,” which provided some relief to investors who were already wary of the ongoing economic uncertainties.
Trump’s latest move came after he announced plans to impose additional 100% tariffs on China, citing Beijing’s export restrictions on rare earth minerals essential for various industries, including smartphones, electric vehicles, and military equipment. These new tariffs would take effect from November 1, marking a significant escalation in the trade conflict.
The president also warned that the US might cancel a planned summit with Xi, highlighting the growing tensions between the two economic giants. Currently, Chinese products face a 30% tariff in the US, while Beijing has imposed a 10% retaliatory tax on American goods.
This announcement led to a sharp drop in Wall Street indices, with the Nasdaq losing over 3% of its value. The situation was compounded by existing concerns about a potential stock market bubble fueled by a recent surge in tech stocks.
However, investors found some comfort in Trump’s subsequent post on social media, where he expressed support for China, stating, “The U.S.A. wants to help China, not hurt it!!!” and emphasizing that “respected President Xi (Jinping)… doesn’t want Depression for his country.”
In response to the threats, Beijing criticized Washington for its actions, labeling them as an example of “double standards.” The Ministry of Commerce stated that threatening high tariffs was not an appropriate way to engage with China, expressing concerns over the potential repercussions of such measures.
The current trade tensions come amid months of fragile negotiations between the two countries, as they aim to finalize a comprehensive trade deal following Trump’s earlier tariff announcements. These previous measures had led to a cycle of retaliatory tariffs, reaching alarming levels.
Asian markets were hit hard by these developments, with Hong Kong’s Hang Seng Index falling over 2%, and the Shanghai Composite dropping more than 1%. Similar declines were observed in other major Asian markets, including Sydney, Singapore, Seoul, Taipei, and Manila.
Despite the negative outlook, there was a positive reaction in the US futures market, which saw a more than 1% increase. This shift in sentiment may indicate that investors are cautiously optimistic about the possibility of a resolution to the trade dispute.
Gold, traditionally seen as a safe-haven asset during times of uncertainty, continued its upward trend, reaching a record high of $4,060. This increase reflects the growing anxiety among investors regarding the potential fallout from the trade tensions.
Oil prices also saw a rebound, reversing Friday’s losses. This recovery was partly attributed to the Israel-Hamas peace deal, which eased concerns about supply disruptions in the Middle East.
Analysts suggest that the current situation may be a temporary setback rather than a long-term crisis. Kai Wang from Morningstar noted that both sides appear to be engaging in posturing ahead of their November 1 meeting, when the current tariff truce is set to expire.
Wang also pointed out that the ongoing US government shutdown could be affecting consumer sentiment, and that Trump may prefer to address domestic issues before escalating foreign policy conflicts.
Key Market Figures
At around 0230 GMT, the following key market figures were reported:
- Hong Kong – Hang Seng Index: Down 2.2% at 25,705.25
- Shanghai – Composite: Down 1.4% at 3,842.20
- Tokyo – Nikkei 225: Closed for a holiday
- Euro/dollar: Up at $1.1626 from $1.1615 on Friday
- Pound/dollar: Up at $1.3361 from $1.3352
- Dollar/yen: Up at 151.88 yen from 151.57 yen
- Euro/pound: Up at 87.01 pence from 86.98 pence
- West Texas Intermediate: Up 1.7% at $59.92 per barrel
- Brent North Sea Crude: Up 1.6% at $63.74 per barrel
- New York – Dow: Down 1.9% at 45,479.60 (close)
- London – FTSE 100: Down 0.9% at 9,427.47 (close)