The surprise decision by Donald Trump to escalate the trade war with tariffs on another Chinese products worth $300 billion has sent global financial markets falling. After sharp falling on Wall Street following the announcement on Twitter by the U.S. president on Thursday, Asian share prices plummeted on Friday evening as increasing hopes that the two financial superpowers of the world would be able to achieve an agreement were demolished.

The Nikkei declined by 2.3 percent in Tokyo, with comparable declines in Hong Kong and Shanghai. The Kospi dropped by 0.8% in Seoul, while the ASX200 benchmark in Sydney, which reached its all-time high pre-global economic crisis on Tuesday, dropped by 0.3%. On commodities markets, Brent crude oil’s price dropped 7 percent, its largest four-year drop, although it recovered 2.5 percent to $62.01 on Friday.

Trump’s choice was also likely to boost the likelihood of another cut in US interest rates with the prospect of worsening trade with China forcing the Federal Reserve in September to tighten monetary policy again. It follows the 0.25% decrease of Wednesday, which was commonly viewed as not sufficient to please the president who was very vocal in calling for reduced prices to boost the economy.

As a sign of future reduced prices, the 10-year US bond yield dropped to 1.902 percent nearly 12 basis points on Thursday, reaching the smallest level since Trump won the November 2016 presidential election. Also the US dollar dropped and stock markets in Europe and the US were prepared for the week’s last day’s turbulent trading. At the deadline, the FTSE100 is set to fall by 1% and the Dow by 0.3%.

Investors had expected that this week’s resumption of US-Chinese bargaining teams talks in Shanghai would pave the way for an agreement. Such an result looked even more probable when the White House said on Thursday that China was meeting a main demand to purchase more agricultural products like soy beans.

Less than 15 minutes later the president tweeted that China had not committed to buying more produce and had also failed to fulfil a pledge to cut sales of the opioid fentanyl with the result that “many Americans continue to die”.

The proposed new tariffs would cover almost all Chinese exports to the US and impact a huge range of consumer goods, pushing up prices for consumers and bringing the prospect of retail job losses.

Neil Wilson, chief analyst at in London, said: “The sharp shooters have given way to the heavy artillery. The trade war just got very hot, just as we thought things were improving.”

Speaking in Bangkok on the sidelines of the Asean regional summit, the US secretary of state, Mike Pompeo, said on Friday that “decades of bad behaviour” from China had forced Washington to introduce tariffs.

However, senior Chinese diplomat Wang Yi was also in the Thai capital and said the tariff threat was “not a correct or constructive way” to resolve the dispute. Wang’s comments underlined the view of many observers that the threat makes a resolution less likely, partly because one of China’s main criteria for a deal is that existing tariffs should be scrapped.

Bill Bishop, author of the influential Sinocism newsletter, said the surprise move would reinforce Beijing’s determination to sit tight and wait for Trump’s presidency instead. Despite the adverse effect on Chinese exports, Trump gave more coverage to President Xi Jinping against inner criticism that mismanaged Washington relations, Bishop asserted. US companies could now expect “an increase in non-tariff policies that penalize American companies and managers.”

“The new status quo in US-China relations is that there is no status quo and we are in an increasingly unstable and unpredictable new era,” he wrote on Friday morning.

Likewise, China’s Global Times newspaper said Beijing would focus more on efforts to survive a prolonged trade war. Hu Xijin, editor-in-chief of the Communist party-backed newspaper, wrote on Twitter: “New tariffs will by no means bring closer a deal that the US wants; it will only make it further away.”

Furthermore, the trade conflict between Japan and South Korea deteriorated on Friday when the Tokyo government removed its neighbor from a so-called white list of favorite export partners. Seoul’s move defied warnings that it would have “serious implications” for US allies ‘ safety connections. Japan claims that the move is essential for national security, accusing Seoul of breaking export laws, but the measure comes with nations engulfed in a long-running conflict over forced labor in South Korea in the Second World War.


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