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The yuan depreciated and Chinese stocks fell after U.S. President Donald Trump said he could impose additional 10% tariffs on China starting next month.
On Wednesday, the CSI300 index, made up of companies listed in Shanghai and Shenzhen, fell 0.9%, while Hong Kong’s Hang Seng index fell 1.6%, led by declines in mainland Chinese companies listed in the region.
The offshore yuan, which trades without restrictions from China’s financial authorities, fell 0.3% to 7.29 to the dollar on Wednesday, before recovering to 7.27.
The dollar rose 0.15% against a basket of currencies including the pound and yen. Gold prices also rose to an 11-week high of $2,758 per troy ounce.
“The central question on tariffs is whether President Trump wants to raise tariffs or whether he wants tariffs as a negotiating tool,” said Andrew, chief economist for Asia Pacific at Goldman Sachs. “Additional tariffs are likely,” Tilton said.
During a whirlwind first day in office, China largely avoided direct attention from President Trump, who threatened to impose 25% tariffs on Canada and Mexico, the U.S.’s largest trading partners, and traders He has scaled back his bets on restarting the trade war, which he started before he took office. first semester.
President Trump said Tuesday that 10% tariffs are being considered to punish China for leaking the opiate drug fentanyl to Mexico and Canada. The United States has accused China of sending chemicals used to make fentanyl to Mexico, where cartels make it.
This was on top of a campaign promise to impose a flat 60% tariff on imports from China, a repeat of an earlier threat made by the new president last year.
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Traders widely expect the dollar to continue strengthening against the currencies of major trading partners, including China, as China’s higher tariffs and lower interest rates weigh on the yuan.
More than a quarter of fund managers in a Bank of America survey said their busiest trade in January was “long USD.”
“Market movements have by no means completely eliminated (pricing) tariff risk. If the U.S. says ‘no tariffs,’ we would see a significant dollar depreciation,” Tilton said. said.
Stocks in the rest of Asia were mostly higher on Wednesday. South Korea’s Kospi rose 1.3%, and Japan’s comprehensive TOPIX rose 0.9%. Taiwan’s benchmark index rose 1% and India’s Sensex index rose 0.2%.
