In the last 12 months ending May 2018, China has strategically reduced its imports from the U.S. to USD162bn. Investors are anxious to see how China responds to the new U.S. threats.
On Wednesday, following U.S. President’s Donald Trump’s threat of imposing additional tariffs on Chinese imports worth $200 billion, stock markets in China tumbled while the yuan weakened further.
The sharp escalation of the trade conflict comes just days after both countries slapped tit-for-tat tariffs on $34 billion of one another’s imports.
The threat of additional tariffs are weighing on investors since it could act as a significant drag against the Chinese economy and a blow to global growth and investments.
Following the news, the Shanghai Composite index fell by 1.6% at 0224 GMT, while the blue-chip
CSI300 index slumped by 1.7%.
Hong Kong’s Hang Seng index trod downwards by 1.4%
“With China importing only USD162bn from the U.S. the last twelve months ending May, markets will be anxiously awaiting China’s response,” wrote FX strategists at DBS Group Research in a note.
The threat of new tariffs worth $200 billion “would mean that around half of Chinese exports of goods to the U.S. would face significant U.S. punitive tariff measures,” wrote Rajiv Biswas, Chief Economist of the Asia Pacific region at IHS Markit, in a note. “China’s export sector will therefore suffer a significant deterioration in export competitiveness to the US compared to other emerging markets’ manufacturing exporters.”
Investor worries extended to the Chinese onshore yuan, which followed its offshore counterpart lower. Traders were keeping a hawk eye on the 6.7 per dollar level. As of GMT 0226, the onshore yuan opened at 6.6694 per dollar and was seen transacting at 6.6660.
Meanwhile as of GMT 0225, the offshore yuan was seen trading at 6.6726 per dollar having hit a low of 6.6918.
“Investors confidence was rocked after the U.S. administrations latest trade salvo which reminded us that not all is quiet on the western trade war front after the Trump administration released a list of 10 percent tariffs on $200 billion in Chinese goods,” wrote Stephen Innes, head of trading for Asia Pacific at OANDA.
“But none the less, this is a very sobering reality check as to just how fragile sentiment around trade war rhetoric is and should keep markets trading defensively during Asia.”
Incidentally, the Chinese 10-year treasury futures for September delivery CFTU8, the most-traded contract, were trading 0.13% higher at 95.630.