Trump's shock tariff threat escalating the US-China trade war leads to a 'risk off frenzy' in global markets

  • Global markets were a sea of red Monday, the day after President Donald Trump threatened to raise tariffs on $US200 billion worth of Chinese goods to 25% from 10% and slap 25% tariffs on an additional $US325 billion worth of goods.
  • China’s Shanghai Composite tumbled 5.58%, while futures on major US indexes dropped as much as 1.8%.
  • The research firm London Capital Group said in an email to clients that Trump’s threat took the markets by surprise and sent investors “into a risk off frenzy.”
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Global markets plunged Monday, a day after President Donald Trump threatened to raise tariffs on hundreds of billions of dollars’ worth of Chinese goods, escalating the US-China trade war.

Trump threatened to dramatically ramp up the trade war with China unless a breakthrough on talks were struck by the end of the week. He said that tariffs on $US200 billion worth of Chinese goods would increase to 25% from 10% and that an additional $US325 billion worth of Chinese goods would be hit with 25% tariffs.

The news panicked investors, as futures on all major US indexes fell by at least 1.8% at their worst levels. Overseas markets were also a sea of red, with China’s Shanghai Composite plunging 5.58% and Hong Kong’s Hang Seng index tanking 2.9%. Europe’s benchmark Euro Stoxx 50 dropped 2%.

Both Brent and West Texas Intermediate crude oil fell by at least 1%.

In an email to clients, the research firm London Capital Group said Trump’s sudden hard line on China tariffs “spooked investors,” adding that the “re-escalation of the US – China trade dispute hit Asian markets hard as investors dive for safety.”

Read more: Trump threatens seismic shift in trade war with China, suggesting new tariffs on $US325 billion worth of Chinese goods

“Headlines from the trade talks had been indicating that progress was being made and that the two sides were closing in on an agreement,” London Capital Group said.

“If there is one thing the markets dislike, it is the unexpected and Trump’s tweet caught the markets completely off-guard sending investors into a risk off frenzy. We know from past experience that this could be one of Trump’s infamous negotiating tactics, but there is a good chance that this time it will backfire.”

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