China stocks slide as Trump expands tariffs on $300bn in exports

China stocks slide as Trump expands tariffs on $300bn in exports

Stocks in China and elsewhere in Asia tumbled on Friday after US president Donald Trump announced that tariffs would be imposed on $300bn of Chinese exports, breaking a fragile truce struck last month after talks faltered. 

The CSI 300 index of Shanghai and Shenzhen-listed stocks dropped 2 per cent in morning trading in Asia. In Hong Kong, the benchmark Hang Seng index fell 2.3 per cent, with consumer, industrial and technology stocks among the hardest hit. 

Other major bourses in the region were not spared, with Tokyo’s Topix shedding 2 per cent and Seoul’s Kospi index down 1.1 per cent. The Korean index fell below the psychological 2,000 point threshold for the first time since January. 

China’s onshore renminbi, which trades 2 per cent in either direction of a daily midpoint set by the central bank, fell 0.6 per cent to its lowest level this year against the US dollar.

Markets were reacting to an escalation of trade tensions between the world’s two largest economies after Mr Trump announced a 10 per cent tariff on an additional $300bn of Chinese imports from September.

In doing so, Mr Trump shattered a tenuous truce that he had reached with Chinese leader Xi Jinping at the G20 summit in Osaka in June after a fresh round of talks in Shanghai this week faltered. 

Tai Hui, chief market strategist at JPMorgan Asset Management, said Mr Trump’s latest announcement will only serve to reinforce a number of investors’ concerns. 

“[The] fragility of the truce achieved in Osaka’s G20 . . . would put tremendous pressure on the next round of trade negotiation, scheduled in early September, assuming Beijing is willing to go ahead given the latest threat,” Mr Hui said, adding that “businesses are right to be cautious about the global economic outlook, especially on global trade”.

Mr Hui said the direct impact on consumers and businesses is expected to rise as the US expands the list of Chinese exports to be hit with tariffs. “This risks putting inflationary pressure on consumer products, which could hurt US consumers, which have been very resilient in recent quarters,” he said. “High tariffs would also erode corporate profit margins.”

Gerry Alfonso, director at Shenwan Hongyuan Securities, noted that rare-earth companies, which are expected to benefit from higher prices in the event of trade restrictions, were some of the only stocks seeing gains. “The inflows into the rare earth sector are clearly related to speculation regarding the trade negotiations,” he said.

Iris Pang, Greater China economist at ING, said she expected China’s strategy to slow down the pace of negotiation and tit-for-tat retaliation until the US presidential election campaign kicks off in earnest. “It won’t have escaped the authorities in China’s attention that a full-blown trade war is unlikely to help Mr Trump’s chances in the election,” she said.

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