Stocks fell, the Chinese yuan weakened and bonds and haven currencies rallied after President Trump threatened to extend tariffs to essentially all Chinese imports.
In Friday morning trading in Asia, regional stock markets fell, following U.S. indexes lower. Benchmarks in China, Japan and Hong Kong dropped more than 2%. Equities in Australia also weakened. The drops came after U.S. indexes reversed earlier gains and finished the Thursday trading session down about 1%.
The tariff move, if imposed, would mark another escalation in the U.S.-China trade conflict and could prompt retaliation from Beijing. The new tariffs would take effect Sept. 1 and cover $300 billion in Chinese goods—including smartphones, clothes, toys and other consumer products. They would come on top of tariffs already imposed on $250 billion in imports from China.
“The market’s worst fears have come to pass in that the fragile trade truce did not last long, just over a month,” said Charlie Lay, a foreign-exchange strategist at Commerzbank, referring to the cease-fire that the U.S. and China reached at the Group of 20 summit in Osaka, Japan, in late June.
Trump’s announcement comes after the Federal Reserve cut interest rates earlier this week for the first time since the financial crisis. The cut was viewed as a pre-emptive move against worsening global growth in part related to the U.S.-China trade dispute.
Investors sought haven assets such as U.S. Treasurys and the Japanese yen. The benchmark 10-year Treasury yield slumped below 2%, falling to its lowest level since the 2016 U.S. election.
In the foreign-exchange markets, the Japanese currency gained 0.3% at 107.06 a dollar after rising 1.3% overnight, its biggest single-day gain in more than two years. The Chinese yuan depreciated against the greenback, with the currency in the offshore market hitting 6.9769 a dollar, its weakest level since November, after making its biggest single-day drop overnight in more than two months.
The Australian dollar, which is vulnerable to trade concern, weakened to its lowest level since January.
In a note to clients, Tai Hui, chief market strategist for Asia-Pacific at J.P. Morgan Asset Management, said the potential for more tariffs threatens to reinforce investor concerns.
“It is unexpected for President Trump to restart the threat of tariffs so soon, especially as Beijing has hinted that it would step up the purchase of U.S. agricultural products,” Mr. Hui said, adding that the move puts more pressure on the next round of trade negotiations.
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