News the United States will categorically impose 10 percent tariffs on $200 million worth of Chinese goods next week caused China's Shanghai Stock Exchange (its largest) to fall to its lowest level in four years.
Global markets, including the United States, also fell on the news. All three major U.S. indexes closed lower Monday, and the tech-laden NASDAQ reported its largest percentage loss since late July.
The main Shanghai Composite index fell 1.1 percent to 2,651.79 points Monday, its worst close since Nov. 27, 2014, according to market analysts. The blue-chip CSI300 index dropped 1.1 percent to 3,204.92 points.
In Hong Kong, the Hang Seng index was 1.3 percent lower in late afternoon trade. The H-shares only Hang Seng China Enterprises Index was off 1.2 percent. The sub-index of the Hang Seng index tracking energy shares slipped 0.6 percent while the IT sector closed 2.6 percent lower.
The smaller Shenzhen index closed 1.5 percent lower on Monday while the ChiNext start-up board wound-up 1.2 percent lower. Predictably, the yuan weakened on the news.
The depreciation came despite the People's Bank of China (the de facto central bank) setting the midpoint of the currency's daily trading band far firmer than expected. The yuan traded as low as 6.8756 to the dollar before strengthening slightly to 6.8699 per dollar as of 0725 GMT on Monday.
The Trump administration announced new tariffs of 10 percent Monday. China promised to retaliate for any new U.S tariff action and might scupper future talks if the new tariffs are announced. An editorial in the state-owned newspaper Global Times said that China looks forward to a more beautiful counter-attack "and will keep increasing the pain felt by the U.S."
Analysts said this seems to indicate that China will selectively target components vital to America's supply chain as a retaliatory move. This action will disrupt production schedules for U.S. firms, especially those in the tech sector such as Apple, Inc.
The 10 percent tariffs will include a far wider range of items. It will hit consumer goods, including plastics, furniture, lighting products, tires, chemicals, bicycles, and Chinese seafood, among many others based on a list of items announced in July. Internet technology products; printed circuit boards and other electronic products will also be levied higher taxes.
China has also threatened to boycott planned trade talks with Treasury Secretary Steve Mnuchin if the Trump imposes the new tariffs.
Elsewhere, global stocks grew weaker Monday as investors yanked cash from riskier markets around the world amid reports the United States is ready to impose the 10 percent tariffs. The flight caused U.S. equity futures to plunge into the red.
The rapid escalation of the unwanted trade war between China and the U.S. ended a three-day winning streak for stocks in Asia. Asian stock saw a significant fall amid thin market liquidity. This was worsened by a national holiday in Japan that kept markets closed throughout the session.
