The United States late Tuesday announced it was starting the process to slap 10 percent tariffs on another $200 billion in Chinese export goods as soon as September, escalating the trade war between the world's two largest economies.
The S&P 500 and Dow futures dropped 1%, indicating Wall Street would open lower, while Japan's Nikkei declined 1.5%.
The spiraling conflict over USA complaints about Chinese technology policy has prompted warnings it might chill global economic growth. Increasing meat imports was also an option, he said.
Beijing has retaliated with duties on the same value of USA imports, ranging from soybeans to cars, and has vowed to respond proportionally to any new U.S. tariffs. "But the unpredictability of the situation continues to rattle the markets", said Varathan. The new round of tariffs is a retaliation against the retaliation. In this round, China accounted for more than half of the imports. Investors fear that a falling yuan could add to fuel costs and the debt-servicing load of companies with dollar-denominated debts.
Chipmakers, which largely depend on China for their revenue, fell, with the Philadelphia semiconductor index down 2.6 percent.
Materials, down 1.7 percent, was another big negative influence on the market, with Freeport-McMoRan down 3.9 percent as copper prices hit their lowest in about a year.
By Aug. 30, as the USA nears mid-term elections vital for Trump's legislative agenda, the White House will be ready to impose 10 per cent tariffs on US$200 billion of Chinese-made products, ranging from clothing to television parts to refrigerators.
The US Chamber of Commerce has supported Trump's domestic tax cuts and efforts to reduce regulation of businesses, but it has been critical of Trump's aggressive tariff policies. The US has suggested that it may ultimately impose tariffs on $500 billion worth of Chinese goods, or roughly the entire amount of US imports from China. China has vowed to retaliate dollar-for-dollar to any further USA tariffs.
High-level talks between the two countries starting in May had failed to deliver a breakthrough to head off a trade war.
However, the market wasn't aggressively testing that level due to concerns it could prompt intervention, they said.
Several traders said they saw some dollar selling by large state banks in the spot market, which went some way to supporting the yuan, though they did not know whether US dollar liquidity offered by the banks was on behalf of the central bank or corporate clients. The euro fell 0.2 per cent to $1.1725 and the Australian dollar lost 0.6 percent to $0.7408.
On Friday, Washington had imposed additional 25 percent tariffs on $34bn of Chinese imports, prompting Beijing to immediately respond with proportionate tariffs on $34bn American goods including seafood and soybeans.