US, Asian and European equity markets suffered a broad sell-off on Thursday after China threatened “counter-measures” should the US escalate the trade war by sharply raising tariffs on more than $200bn of imports.
Fears of a worsening trade war spread through European equity markets, with the Stoxx Europe 600 dropping 0.9 per cent and the region’s carmakers among the hardest hit on the exporter-focused index.
The S&P 500 also opened lower as investors reacted to the ratcheting up of trade tensions between the US and China, hitting steel producers and selected manufacturers.
Chinese officials reacted forcefully to the threat from US president Donald Trump to more than double proposed tariffs on $200bn of annual imports from China as early as next month.
“As regards the threat by the US to upgrade the trade war, China is fully prepared and will introduce counter-measures to defend the country’s dignity and the interests of the Chinese people, and defend free trade and the multilateral system,” China’s commerce ministry said.
A drop in China’s currency against the US dollar accelerated in London, marking the weakest level since May last year, while the CSI 300 index of Shanghai and Shenzhen shares closed down 2.3 per cent and Hong Kong’s Hang Seng closed off 2.2 per cent.
US commerce secretary Wilbur Ross used an interview with Fox Business News on Thursday to defend President Trump’s decision to impose tariffs on China and the EU as “carefully thought through” — but said the president was working to reach a compromise that could reverse tariffs with the EU.
On Wednesday night, it emerged that Mr Trump had asked his advisers to look into raising the tariffs on $200bn of Chinese goods from a proposed 10 per cent to 25 per cent.
“First, we advise the US side to correct its attitude and not to try to engage in blackmail. This does not work for China,” said Geng Shuang, foreign ministry spokesman. “Second, we advise the US to return to reason and not to act in anger, which will ultimately hurt themselves.”
The offshore yuan, which trades in big global currency hubs outside mainland China, was down 0.52 per cent in recent trade, with a dollar buying 6.86 units of the currency.
The Japanese yen, which typically rises during times of higher geopolitical uncertainty, was up 0.21 per cent against the dollar at ¥111.46. The euro dropped 0.4 per cent against the dollar. Meanwhile, emerging market currencies were off 0.58 per cent, according to a JPMorgan index.
“The Chinese have tried everything they can — flattery, negotiations, retaliation,” said Yanmei Xie at Gavekal Dragonomics in Beijing. “Nothing has stopped the escalation.”
“[The US is] running against the trend of the times and are not moving in the right direction,” said Wang Yi, China’s foreign minister, at the Asean foreign ministers’ meetings held in Singapore on Thursday.
“Nowadays we live in a globalised world. We are not doing 19th century trade,” he added.
Mr Wang said that 60 per cent of Chinese exports to the US are manufactured by companies backed by foreign investment, including from the US.
“Is the United States trying to put tariffs on its own companies . . . is the US administration trying to raise the living cost of its own consumers?” he said, adding that cutting Chinese imports would not necessarily ease Washington’s trade imbalance with Beijing.
Mr Wang called for US trade policymakers to be “cool-headed” and to listen to the voices of US consumers and business as well as the international community.
China was ready to maintain dialogue with the US as long as it takes place “on the basis of mutual respect and equality,” he added.
Reporting by Daniel Thomas and Adam Samson in London, Stefania Palma in Singapore, and Tom Mitchell, Tom Hancock and Yuan Yang in Beijing
