President Donald Trump sent Asian and European stock markets plunging yesterday by threatening to hike tariffs on $200 billion of Chinese goods in a bid to speed up stuttering trade talks between the economic superpowers.
Equities in Asia, Europe and the US were a sea of red as Mr Trump’s remarks rekindled fears of a trade war with potentially devastating consequences for world growth.
On Wall Street, the Dow Jones index lost over 400 points at the New York opening bell, while eurozone markets were down by more than 1.5 per cent at that time, having earlier plunged more than two per cent.
Asian exchanges saw some of the worst falls, with Shanghai plunging more than five per cent, and the Chinese yuan taking a battering after the President threw a spanner into the high-level negotiations.
The warning threw a shadow over the next round of talks ahead of a visit by a Chinese delegation to Washington this week.
A number of news outlets reported that China was considering delaying or cancelling the meeting, but a foreign ministry spokesman said a delegation would head to the United States as planned.
The two sides have imposed tariffs on $360 billion in two-way trade since last year.
But Mr Trump and China’s Xi Jinping agreed a truce in December, fuelling a surge in global stocks for the past four months.
News that the People’s Bank of China would slash the amount of cash lenders must keep in reserve, to support small businesses, had little impact in the face of Mr Trump’s warning.
“Trade had been put to the side by many market participants,” said Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs.
But Mr Trump’s threat now “raises the spectre of a significant hit to growth should these tariffs escalate and should the uncertainty associated with that weigh on investment going forward”, he told Bloomberg TV.
The yuan sank 1.3 per cent at one point against the dollar, its heaviest fall in more than three years.
Flight to safety saw the dollar surge across the board, particularly against higher-yielding, higher-risk units, although the yen held its own against the greenback.
On oil markets, both main contracts were hammered by worries that a trade war between the world’s top two economies could hit demand.
However, Stephen Innes at SPI Asset Management remained positive, calling Trump’s tweet “political posturing”. A deal was still likely, said Mr Innes.