Stock markets slid further on Friday amid growing fears of an escalating trade war between the world’s two biggest economies as China announced it would increase its retaliatory tariffs on US goods to 125%.
The increase from 84% ups the ante to the same level as the US 125% “reciprocal” tariff on its imports that came into force on Thursday, although the White House clarified later that day that its total levies on Chinese imports are now at least 145% when a separate 20% fentanyl-related border tax is included.
Indexes reversed the relief rallies that that had followed Trump’s Wednesday announcement of a 90-day pause on “reciprocal” tariffs on most other countries, reverting to a baseline of 10%.
European markets had been gaining on Friday before Beijing’s latest tariff news but afterwards slid into the red.
London’s FTSE 100 index slipped 0.2% on Friday morning, while in Paris the Cac 40 dropped by 0.9%. The German Dax slipped 1.1%, while the pan-European Stoxx Europe 600 index fell by 0.9%.
In Asia, stocks had already been falling before the announcement, with Japan’s Nikkei 225 index down 3.4%, reversing the previous day’s 9% gain. Meanwhile, the South Korean Kospi index dropped 0.7%. However, Chinese share indices were resilient in the face of higher tariffs, with the Hang Seng rising by 2% and the Shanghai composite ticking up 0.6%.
Announcing its latest retaliation, Beijing’s finance ministry said that if Washington insists on continuing to infringe upon China’s interest in a substantive way, the country will resolutely take countermeasures and fight to the end.
US stocks closed down after another day of losses on Thursday, which accelerated after it became clear the total China tariff was larger than widely believed. The S&P 500 blue chip index dropped 3.5% and the technology-focused Nasdaq composite fell 4.3%.
Despite the market turmoil, the Trump administration has held firm. One of the president’s top trade advisers, Peter Navarro, dismissed the sell-off. He told CNBC: “It’s just normal retracement after a big day. It’s no big deal.”
American government bonds have also been selling off heavily as investor confidence in the Trump administration wanes. The yield on the 30-year Treasury is now on track for its largest weekly rise since the 1980s, according to Deutsche Bank. Meanwhile, the US dollar has also been weakening, falling 1% on Friday against a basket of currencies.
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The former US Treasury secretary Janet Yellen has said the tariff policies could cost the average American household $4,000 a year. She said in an interview with CNN: “This is the worst self-inflicted wound that I have ever seen an administration impose on a well-functioning economy.” Yellen added that Chinese tariffs could be especially damaging, an “no one knows where these policies are headed”.
However, Trump has told US reporters that he thought trade deals with some countries were “very close” and expressed optimism that China would eventually be open to negotiation.
