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 Beijing’s imports that came into force on Thursday, although the White House clarified later that day that its total levies on Chinese goods were now at least 145%, when a separate 20% fentanyl-related border tax was included.
Indexes reversed the relief rallies that had followed Trump’s announcement on Wednesday 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 0.4% on Friday morning, while in Paris the Cac 40 dropped by 1.3%. 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. Japan’s Nikkei 225 index ended the session down 3%, reversing the previous day’s 9% gain. Meanwhile, the South Korean Kospi index dropped 0.5%. However, Chinese share indices were resilient in the face of higher tariffs, with the Hang Seng rising by 1.1% and the Shanghai composite ticking up 0.5%.
Announcing its latest retaliation, Beijing’s finance ministry said that if Washington insisted on continuing to infringe upon China’s interests in a substantive way, the country would resolutely take countermeasures and fight to the end.
Xi Jinping has urged the EU to work with China to resist tariff “bullying”. The Chinese president told a meeting with the Spanish prime minister, Pedro Sánchez, on Friday there were “no winners in a tariff war”.
US stocks closed down on Thursday after another day of losses, 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 Thursday’s sell-off, telling CNBC: “It’s just normal retracement after a big day. It’s no big deal.”
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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, currently at 4.84%. Meanwhile, the US dollar has also been weakening, falling 1% on Friday against a basket of currencies.
The former US Treasury secretary Janet Yellen has said the tariff policies could cost the average American household $4,000 a year. She told 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, and “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.
