Trump’s tariff threat puts markets on edge
It may be a negotiating tactic ahead of trade talks but it risks misfiring should China retaliate
US President Donald Trump claimed his spot as the ultimate killjoy of financial markets on Sunday.
In two tweets, the vociferous leader of the world’s largest economy threatened to raise tariffs on $200bn of Chinese imports from 10% to 25%, because trade talks were progressing "too slowly".
In response to the two short-and-sweet tweets, China threatened to cancel trade talks this week, according to media reports.
Since investors had expected that a trade deal was pretty much in the bag, this came as a huge shock to the market. The Shanghai composite index fell as much as 6.6% at one point on Monday, with tech shares and small caps leading the declines. In Hong Kong, Chinese media and gaming giant Tencent fell 4.5% in early trade, dragging Naspers down a similar amount. The JSE had collateral damage, falling by about 2% on Monday morning.
Trump’s tweets "scared the market", local money manager Vestact said in a note on Monday. If the Chinese delegation did cancel their plans to visit the US this week, "that would be very bad", though it was still likely that the delegation would arrive later in the week and a deal would be agreed to, Vestact said.
Trump’s tweets were "probably just part of a ‘negotiations dance’; the art of the deal and what not".
Analysts at Singapore’s OCBC Bank said: "It remains to be seen whether it is just a negotiating tactic ahead of a new round of trade talks this week … However, the risk of misfire is getting higher should China react strongly."
Trump’s games had big ramifications for financial markets. Bloomberg reported that China had even called on state investors to prepare to stabilise the stock market if need be.
Before Trump took to Twitter, markets were generally upbeat, particularly after the US reported better-than-expected nonfarm payrolls and jobs data. He quickly put an end to the fun.