China increases tariffs on US goods as US bond sell off accelerates

A sell off of vital US government bonds and European shares accelerated on Wednesday, after China said it would increase tariffs on US goods imports.

European share prices sank, oil prices plunged, and US Government debt was pummelled as Donald Trump’s 104 per cent tariffs on Chinese imports into the US took effect on Wednesday morning, sparking a wave of selling across global markets.

In the latest escalation of the stand-off, China said it will impose 84 per cent tariffs on US goods from Thursday, up from the 34 per cent previously announced, the finance ministry said.

The Iseq index dropped by more than 3 per cent by mid afternon, erasing most of Tuesday’s 4 per cent gain. Irish banks came under renewed pressure, with Bank of Ireland down more than 5.5 per cent and AIB down by 5.8 per cent.

Europe’s major stock indices were also lower, with the pan-European Stoxx 600 down 3.9 per cent by lunchtime, while the UK’s benchmark FTSE 100 index was down by 3.6 per cent.

In a notable move, the US dollar and the country’s Government bonds – two tentpoles of the global financial system – came under pressure. Over the past four days, the yield, or interest rate, on the benchmark US ten-year bond has experienced one of its most aggressive increases in such a short time frame in a quarter of a century.

Traditionally a safe haven when markets fall, the spike in bond yields, has been seen as a sign of investors needing to sell what they can to raise cash, but also an indication that investors view the country’s debt as increasingly risky.

The US dollar fell as investors fled to alternative safe-haven assets like the Japanese yen, Swiss franc and gold.

The European Central Bank (ECB) is “fully mobilised” to ensure financial stability in the euro zone during times of “market stress”, the governor of the French central bank said on Wednesday, as global markets were roiled again by fresh turbulence.

In a letter to French president Emmanuel Macron on Wednesday, ECB policymaker and governor of the Bank of France Francois Villeroy said Frankfurt is “fully mobilised to ensure the economy is well financed and (ensure) financial stability”.

Still, ECB policymaker Robert Holzmann later said he saw no reason to cut rates for the moment.

Few assets were spared the recession fears engulfing markets, with oil prices tumbling by as much as 4 per cent.

Even so, US stock indices whipsawed in early trading. The Dow Jones Industrial Average was up marginally while the tech-heavy Nasdaq index rose 1.2 per cent. Yet the wider S&P 500 fell 0.5 per cent.

Meanwhile, China’s blue chip stocks reversed earlier losses to rise almost 1 per cent, likely underpinned by continued support from Beijing. Hong Kong’s Hang Seng index also reversed earlier declines to edge higher by 0.6 per cent.

Other stock markets in Asia were also deep in the red on Wednesday morning. Japan’s Nikkei tumbled 3.9 per cent.

Analysts at JPMorgan believed the rapid escalation with US tariffs on China were disruptive enough to push the global economy into recession.

“Given the import bill from China, the China tariff alone amounts to a whopping $400 billion tax hike on US households and businesses,” they said in a note to clients. “The currency is likely to be a release valve for China policymakers.”

– Additional reporting: Reuters