China's yuan dropped to its lowest levels in seven weeks and stock markets slumped on Thursday after U.S. President Donald Trump unveiled a sweeping set of reciprocal tariffs that were particularly heavy on China and its main trading partners.
While investors had been bracing for these tariffs over the past week, Washington's latest punitive measures turned out to be more aggressive than expected.
China's bluechip CSI 300 Index was down 0.5%, while Hong Kong's Hang Seng Index fell 1.7% at the open.
The yuan hit a fresh one-month low in offshore trade and opened on the mainland 0.5% lower around 7.3 per dollar, levels last seen on February 13 .
"There is no doubt that the big negative surprise today has been the 50%+ tariff rate on China and the key connector economy Vietnam - affecting $600 billion worth of manufactured goods to the U.S. combined," George Saravelos, head of FX research at Deutsche Bank, said in a note.
"At risk of oversimplifying...the negative global spillover to the rest of the world in coming days will largely be determined by the extent to which China allows the policy-determined dollar/yuan to move materially above 7.20 or decides to do more fiscal stimulus instead."
Trump said on Wednesday that he would impose a 10% baseline tariff on all imports to the U.S. and higher duties on dozens of other countries. The tariffs will take effect on April 9.
Chinese imports will be hit with a 34% tariff, on top of the 20% he previously imposed, bringing the total new levy to 54%.
Trump also signed an order to close a trade loophole used to ship low-value packages - those valued at $800 or less - duty-free from China, known as "de minimis." The order covers goods from China and Hong Kong and will take effect on May 2, according to the White House.
Countries in China's supply chain were hardest hit, with Vietnam, Cambodia and Laos getting slapped with tariffs between 46% and 49%.
The yuan has given up most of its gains this year over the past month, despite efforts by the People's Bank of China (PBOC) to keep it steady through changes to its daily benchmarks.
Trade dynamics and the latest tariffs suggest the yuan should come under pressure, said Rodrigo Catril, senior currency strategist at National Australia Bank.
"The big question for today is - is the PBOC still determined to defend that line...and keep the currency stable within the recent range? They're trying to portray themselves as the reliable partner, and amongst that, it's also this idea that they're not going to allow their currency to depreciate significantly."
Trump kicked off the latest trade war with China this year with a 10% tariff on Chinese exports to the U.S. in February, then stacked it up with another 10% levy in March, followed by a blanket 25% tariff on auto imports last week.
The escalating trade spat risks denting sentiment towards the world's second-largest economy, which was seen as an alternative to U.S. exceptionalism just weeks ago as investors sought diversification.
The Hang Seng Index rose over 15% in the first quarter as investors rebalanced their China exposure, ranking as the best performer among major global markets.
It could also complicates Beijing's plan to spur economic growth.
Beijing has identified boosting consumption as a priority to help achieve a roughly 5% growth target for 2025, but the trade war is not only a headwind to external demand for Chinese goods but it also adds to the challenges of weak wage growth and deflationary pressures at home.
Expectations monetary easing will follow drove Chinese bond yields down.
While investors had been bracing for these tariffs over the past week, Washington's latest punitive measures turned out to be more aggressive than expected.
China's bluechip CSI 300 Index was down 0.5%, while Hong Kong's Hang Seng Index fell 1.7% at the open.
The yuan hit a fresh one-month low in offshore trade and opened on the mainland 0.5% lower around 7.3 per dollar, levels last seen on February 13 .
"There is no doubt that the big negative surprise today has been the 50%+ tariff rate on China and the key connector economy Vietnam - affecting $600 billion worth of manufactured goods to the U.S. combined," George Saravelos, head of FX research at Deutsche Bank, said in a note.
"At risk of oversimplifying...the negative global spillover to the rest of the world in coming days will largely be determined by the extent to which China allows the policy-determined dollar/yuan to move materially above 7.20 or decides to do more fiscal stimulus instead."
Trump said on Wednesday that he would impose a 10% baseline tariff on all imports to the U.S. and higher duties on dozens of other countries. The tariffs will take effect on April 9.
Chinese imports will be hit with a 34% tariff, on top of the 20% he previously imposed, bringing the total new levy to 54%.
Trump also signed an order to close a trade loophole used to ship low-value packages - those valued at $800 or less - duty-free from China, known as "de minimis." The order covers goods from China and Hong Kong and will take effect on May 2, according to the White House.
Countries in China's supply chain were hardest hit, with Vietnam, Cambodia and Laos getting slapped with tariffs between 46% and 49%.
The yuan has given up most of its gains this year over the past month, despite efforts by the People's Bank of China (PBOC) to keep it steady through changes to its daily benchmarks.
Trade dynamics and the latest tariffs suggest the yuan should come under pressure, said Rodrigo Catril, senior currency strategist at National Australia Bank.
"The big question for today is - is the PBOC still determined to defend that line...and keep the currency stable within the recent range? They're trying to portray themselves as the reliable partner, and amongst that, it's also this idea that they're not going to allow their currency to depreciate significantly."
Trump kicked off the latest trade war with China this year with a 10% tariff on Chinese exports to the U.S. in February, then stacked it up with another 10% levy in March, followed by a blanket 25% tariff on auto imports last week.
The escalating trade spat risks denting sentiment towards the world's second-largest economy, which was seen as an alternative to U.S. exceptionalism just weeks ago as investors sought diversification.
The Hang Seng Index rose over 15% in the first quarter as investors rebalanced their China exposure, ranking as the best performer among major global markets.
It could also complicates Beijing's plan to spur economic growth.
Beijing has identified boosting consumption as a priority to help achieve a roughly 5% growth target for 2025, but the trade war is not only a headwind to external demand for Chinese goods but it also adds to the challenges of weak wage growth and deflationary pressures at home.
Expectations monetary easing will follow drove Chinese bond yields down.
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