Asian shares sink after Trump’s 104% tariffs on China take effect

Sydney — Major stock indices sank in Asia on Wednesday after President Donald Trump’s eye-watering 104% tariffs on China took effect, while a savage sell-off in treasuries sparked the fear foreign funds were fleeing US assets.

The dollar fell against safe-haven currencies, but the onshore yuan hovered just above the lowest level since late 2007 as Beijing allowed the currency to depreciate further amid the sharp escalation in the trade war with US

Few assets were spared the recession fears engulfing markets, with oil prices diving almost 4%.

The pain is likely to spread to Europe too, with Eurostoxx 50 futures pointing to a 3.7% drop on opening. Both S&P 500 futures and Nasdaq futures dropped 1.6%.

Overnight, Washington confirmed 104% duties on imports from China would take effect at 4.01am GMT, as planned. That deadline passed without new developments on trade.

“US and China are stuck in an unprecedented, and expensive, game of chicken, and it seems that both sides are unwilling to back down,” said Ting Lu, chief China economist at Nomura.

“Given the extraordinarily fluid situation, it is impossible to reasonably estimate the impact of the ongoing US-China trade war on China’s economy.”

The shifting headlines on tariffs and the spectre of a prolonged trade war between the world’s two biggest economies sparked sharp volatility in financial markets.

The S&P 500 was swept up in one of the biggest reversals in at least the last 50 years, with the benchmark index losing 4.2 percentage points from a positive start to a negative finish. The index has lost $5.8-trillion in stock market value, the deepest four-day loss since it was created in the 1950s.

Late on Tuesday, Trump said China was manipulating currency to protect against tariffs, but he thought China would make a deal at some point.

China’s blue chips reversed earlier losses to rise 0.3%, probably underpinned by continued support from Beijing. Hong Kong’s Hang Seng index fell 1.6%.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.9%.

Other stock markets in Asia were also deep in the red. Japan’s Nikkei tumbled 3.6%, after rallying 6% on Wednesday on the hope that Tokyo may get some trade deal with the US Taiwanese stocks also fell 4.6% even though the government activated a $15bn stabilisation fund.

Analysts at JPMorgan believed the rapid escalation with US tariffs on China were disruptive enough to push the global economy into recession.

“Given the import bill from China, the China tariff alone amounts to a whopping $400bn tax hike on US households and businesses,” they said in a note to clients. “The currency is likely to be a release valve for China policymakers.”

The People’s Bank of China on Wednesday set its guidance for the yuan at 7.2066 to the dollar, the weakest level since September 2023. That pushed the onshore yuan down to 7.3499 to the dollar, just a tad stronger than the 7.3510 level which is the weakest since late 2007.

In the treasuries, the benchmark 10-year yield rose 24 basis points (bps) to 4.501%, an unusual move in the Asia time zone, which brought the total rise over the past three days to a whopping 51bps.

The 30-year yield surged 28bps to 5.023%, the highest since late 2023.

In currency markets, safe-haven currencies like the yen and Swiss franc found some more love, with the dollar skidding 0.8% to ¥145.10 and down 0.5% to Sf0.8430.

Elsewhere, the Reserve Bank of New Zealand cut interest rates by 25bps to 3.5%, and opened the door for potentially bigger cuts as it warned about downside risks to the economy from global trade barriers.

Oil prices dived almost 4% on Wednesday on concerns about demand from China. Brent futures plunged 3.7% to $60.50 a barrel, while US crude futures also tumbled 4.1% to $57.16 a barrel.

Gold regained its upward momentum and was last up 0.7% at $3,005/oz.

Reuters