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News > International > Asian Markets Hurting As Trade War Escalates Between U.S. And China

Asian Markets Hurting As Trade War Escalates Between U.S. And China

Both countries are raising tariffs on each other's products causing global markets to have major sell offs.

HONG KONG -- The escalating trade war between the United States and China is causing more market volatility around the world, with stocks in Asia suffering Tuesday while European markets and US futures turned positive.

Wall Street's rout Monday was followed by losses on most major Asian markets. Hong Kong's Hang Seng closed 1.5% lower, the Shanghai Composite fell 0.7% and Japan's Nikkei shed 0.6%. South Korea's KOSPI managed to buck the trend, edging 0.14% higher.

It was the first chance Asian markets had to react to the latest retaliatory measures from China.

US stock futures, meanwhile, were pointing slightly up on Tuesday, and major European indexes including the FTSE 100, CAC 40 and DAX all opened higher.

Beijing announced late Monday that it would raise tariffs on $60 billion worth of US goods from June 1. That comes after the United States hiked tariffs from 10% to 25% on $200 billion worth of Chinese exports on Friday following a breakdown in trade talks between the world's top two economies.

Asian stocks "could be in for an extended period of pain," said Jeffrey Halley, senior market analyst at Oanda. Equities with a riskier exposure to China "may find it reaches migraine levels," he added.

Investors around the world fear a protracted trade war in which both the United States and China continue to raise tariffs. US businesses that import Chinese goods pay the tariffs levied by the United States. Companies either eat that cost, which pinches their profits; or they pass the cost onto consumers, which can hurt demand for their products.

"This is a self-inflicted wound that will be catastrophic for the nation's economy," said Rick Helfenbein, head of the American Apparel and Footwear Association. Tariffs "are taxes on American consumers that result in higher prices, lower sales, and lost jobs," he added.

Meanwhile, China is digging in for a fight.

Ministry of Foreign Affairs spokesman Geng Shuang said Monday that China will "never yield to external pressure," hours before Beijing announced its latest round of tariffs.

Analysts say markets have to start repricing risk to reflect the new geopolitical reality.

"Even if a deal is signed next week, it is now clear to us that the China-US relationship will be fraught for decades to come" analysts at brokerage firm Jefferies wrote in a client note.

"As China's economic and geopolitical rise butts up against existing US interests, eleventh hour negotiations and brinkmanship will be a recurring theme which the markets will learn to price in," they said.

(PHOTO: VCG/Getty Images)

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