Market Turmoil as Trade War Fears Escalate Between US and China
Stock markets experienced a significant downturn on Friday due to rising concerns surrounding an escalating trade war between the world's two largest economies. China announced its decision to increase retaliatory tariffs on US goods to 125%. This marked an increase from an earlier 84%, matching the reciprocal tariff set by the US, which went into effect on Thursday. The White House later clarified that the total levies on Chinese imports now stand at 145% when including a 20% fentanyl-related border tax.
Initially, markets had shown signs of recovery following President Trump's announcement of a 90-day pause on reciprocal tariffs with most other countries; however, this optimism quickly dissipated. Major European markets had seen gains that day until the news from Beijing turned the tide, leading indices to slide into negative territory. London’s FTSE 100 index fell by 0.2%, the CAC 40 in Paris dropped by 0.9%, and Germany's Dax slipped by 1.1%. The pan-European Stoxx Europe 600 index also experienced a decline of 0.9%.
In Asia, stocks were already on a downward trend prior to the announcement, with Japan's Nikkei 225 index down by 3.4%, effectively reversing a 9% gain from the previous day. South Korea’s Kospi index fell by 0.7%. Interestingly, Chinese share indices showed resilience amidst the heightened tariff situation, with the Hang Seng index rising by 2% and the Shanghai composite up by 0.6%.
In response to the heightened tariff measures, China’s finance ministry declared that if the US continues to infringe upon China's interests substantively, they will resolutely take countermeasures and fight to the end.
American stocks closed the prior day down significantly, with the S&P 500 blue-chip index losing 3.5% and the technology-focused Nasdaq composite falling by 4.3%. Despite the market volatility, the Trump administration maintained a steadfast outlook. Peter Navarro, one of the president's top trade advisers, downplayed the selloff, stating on CNBC, "It's just normal retracement after a big day. It's no big deal."
Amid the growing unrest in the markets, American government bonds have seen considerable selling activity as investor confidence in the Trump administration continues to wane. The yield on the 30-year Treasury is trending towards its largest weekly rise since the 1980s, as noted by Deutsche Bank. Furthermore, the US dollar weakened, decreasing 1% against a basket of currencies on Friday.
Former US Treasury Secretary Janet Yellen weighed in on the tariff policies, projecting that they could cost the average American household up to $4,000 annually. In her interview with CNN, she remarked, "This is the worst self-inflicted wound that I have ever seen an administration impose on a well-functioning economy," adding that the tariffs from China could have especially damaging effects and expressing uncertainty about the future path of these policies.
In the midst of this financial turmoil, President Trump remained optimistic, telling US reporters that he believed trade deals with several countries were nearing completion and expressed hope that China would eventually return to the negotiation table.
Related Sources: