World markets won a reprieve on Tuesday after three days of heavy selling that wiped trillions of dollars off the value of shares, as China vowed to “fight to the end” against additional U.S. tariffs imposed on Beijing.Â
But less than a week since U.S. President Donald Trump unleashed sweeping reciprocal tariffs that sent world markets into a tailspin, the mood remained fragile.
The VIX stocks volatility index, often referred to as Wall Street’s fear gauge, remained elevated at around 44 points — albeit off Monday’s peak just above 60.
U.S. 10-year Treasury yields were steady after posting their biggest one-day jump in a year on Monday. Analysts said a number of reasons may have explained the sharp rise in U.S. bond yields on Monday including investors selling their most liquid assets to make up for falls elsewhere.
The American dollar, which has taken a beating from the tariff turmoil, remained weak against other major currencies. Safe haven currencies, including the yen and the Swiss franc, held near six-month highs to start Tuesday.
Japan’s blue-chip Nikkei stock index closed six per cent higher, while in Europe shares rose from 14-month lows and markets in London, Paris and Frankfurt were up more than one per cent.
“Sentiment is rebounding, perhaps on the view that Trump may focus protectionism on China and speed up trade deals elsewhere,” said Francesco Pesole, currency strategist at ING. “Markets may be erring on the optimistic side though.”
‘Battle of wills’ shaping up: analyst
China’s markets rose only modestly after the country’s sovereign wealth funds stepped in to buy shares. Chip-export-dependent Taiwan’s benchmark tumbled five per cent, a day after suffering its worst fall on record.
The Chinese yuan fell to 7.3677 per dollar in the offshore market, the weakest in two months, before rebounding to be slightly stronger than Monday’s close at 7.3393.
China is hitting the U.S. where it hurts by imposing a 34 per cent reciprocal tariff on imports and restrictions on key rare-earth minerals. In response, U.S. President Donald Trump is threatening an additional 50 per cent tariff if China fails to withdraw its measures. Andrew Chang explains the escalation of the trade war between the world’s two largest economies and the potential impact of China’s retaliation.
Trump dug in his heels over China, vowing additional 50 per cent levies if Beijing does not withdraw the retaliatory tariffs of 34 per cent it announced last week for the United States. If Trump sticks to his plan, total new U.S. duties on Chinese goods this year could rise to 104 per cent by Wednesday.
Trump imposed less expansive tariffs on China in his first term as president, some of which successor Joe Biden maintained.
But with global supply chains in jeopardy, Beijing is under pressure to respond.
“The U.S. side’s threat to escalate tariffs against China is a mistake on top of a mistake, once again exposing the American side’s blackmailing nature,” China’s commerce ministry said in a statement.
“If the United States insists on having its way, China will fight to the end.”
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Trump’s affinity for tariffs risks derailing China’s largely export-led economic recovery given that no other country comes close to the consumption power of the U.S., where Chinese producers sell more than $400 billion worth of goods annually.
“If the tariffs keep going up and up, it becomes a battle of wills and principles rather than economics,” said Xu Tianchen, senior economist for China at the Economist Intelligence Unit.
Trump’s tariffs will be felt particularly keenly as they target the two main strategies Chinese exporters have used to blunt the impact of the trade war: shifting some production abroad and boosting sales to non-U.S. markets.
Chinese President Xi Jinping this month is scheduled to visit Malaysia, Vietnam and Cambodia, three economies that gained from relocation by Chinese manufacturers to avoid U.S. sanctions during Trump’s first term, but which now face steep levies of their own.
EU prepares response to looming levy
European Commission President Ursula von der Leyen in a phone call with China’s Premier Li Qiang called on Beijing to ensure a negotiated solution and stressed the need to support a fair trading system founded on a level playing field
The European Commission said on Monday it had offered a “zero-for-zero” tariff deal to avert a trade war with the United States. The commission proposed counter-tariffs of 25 per cent on a range of U.S. goods including soybeans, nuts and sausages, though other potential items like bourbon whiskey were left off the list, a document seen by Reuters showed.
