According to the news report by Reuters, the US has raised tariffs to 25% from the earlier 10% on $200 billion worth of imports from China, thereby escalating the trade war that many were hoping was drawing to an end.
However, even as China threatened retaliation, officials in Washington agreed to continue negotiations for another day, keeping hopes alive that an eventual deal could be discussed.
President Donald Trump had issued the orders for the increase in levies, saying that China had first broken the deal by going back on commitments that the Asian giant had made during negotiations in the last few months.
Trump further stated that he was also initiating the process of imposing 25% tariffs on another $325 billion worth of Chinese imports.
In response, the Commerce Ministry in China stated that it deeply regretted the decision taken by the United States and that it would be taking necessary countermeasures. However, the Ministry did not elaborate on what these measures would be.
Bloomberg reported that the news had an immediate effect on international – especially Asian markets in trading so far. Stocks in Asia showed extreme volatility, and the US Index futures contracts fell.
Trading volumes in international markets shot up as investors reacted to the news, with concerns growing once again that negotiations were going to fall through.
The Japanese Topix, which had gained 0.9% for the day, fell by 0.7% after the news of the tariffs broke. The futures on the S&P 500 also saw similar drops.
While the Chinese Yuan saw little change, the stock markets in the country – both in Shanghai and Hong Kong – saw volatility in the trading.
Moody’s Investors Service’s credit strategist Michael Taylor wrote in a note to clients that they believed that a trade deal would eventually be reached between the two countries. However, the increase in tariffs could lead to a global repricing of risk assets, slower growth and tighter financial conditions.
In Treasuries, the 10-year yields, saw their first inversion since March during trading in the US on May 9. In international trading on Friday, emerging markets currencies held steady, and the Korean Won was among those that strengthened against the US Dollar.
Many analysts feel that investors in the markets may be waiting to see how China reacts to these increased tariffs.
The stocks in the international markets have reacted in the following way:
- In Hong Kong, the MSCI Asia Pacific Index gained 0.3%, after falling more than 1%
- In Japan, the Topix Index dropped 0.1%
- The Hang Send Index in Hong Kong gained 1.1%
- In China, the Shanghai Composite Index gained 2.1%. The Chinese market first fell, however, with the news that the talks between the two country were to continue, regained ground quickly to end the trading day up.
- In Australia, S&P/ASX 200 Index dropped 0.3%
- S&P 500 Index futures dropped 0.3%
- Euro STOXX 50 futures went up 0.6%
In currencies, the Japanese Yen did not show much change, holding steady at ¥109.73 against the dollar. The offshore Yuan also stayed steady against the dollar at 6.8380. The Euro was at $1.1227.
In the bonds market, the 10-year Treasuries yield stayed the same at 2.44%. In Australia also, the 10-year Treasuries yield stayed the same at 1.72%.
In the commodities market, the West Texas Intermediate, the American benchmark for crude oil, rose by 0.2% to $61.85 to the barrel. The price of gold also went up by 0.2% to $1,286.56 to the ounce.