Stocks in Asia and Europe join Wall Street sell-off as US and China trade war escalates

Market instability continues as White House clarifies tariffs on China are at least 145%

Traders on the floor at the New York Stock Exchange. AFP

Stocks in Asia and Europe fell on Friday amid fears of a worsening trade war, as investors' relief turned to angst after Washington announced tariffs on China have risen to 145 per cent.

Japan's Nikkei 225 Index slumped almost 3 per cent, while South Korea's Kospi, which managed to recover some earlier losses, closed trading 0.5 per cent lower. The benchmark equities gauge in Australia also retreated 0.8 per cent.

In China, Hong Kong's Hang Seng and the Shanghai Composite Index advanced by 1.13 per cent and 0.45 per cent respectively, amid hopes Beijing will introduce a stimulus package to offset the effect of increased US tariffs on the world’s second-largest economy.

China has raised the stakes in the trade war with the US by increasing its tariffs on American goods to 125 per cent.

The move is in response to "abnormally high tariffs [that] seriously violate international economic and trade rules, basic economic laws and common sense, and are completely unilateral bullying and coercion", China's Customs Tariff Commission of the State Council said on Friday.

Starting on Saturday, "the tariff increase measures on imported goods originating from the US will be adjusted", it said.

Dubai's DFM General Index tracked the broader markets weakness and fell 0.35 per cent, but the gauge in Abu Dhabi managed slight gains.

European stocks also retreated, With FTSE 100 Index in London, declining 0.22 per cent, Germany's Deutsche Borse Dax falling 1.68 per cent and Franc's CAC 40 Index sliding 1.06 per cent.

A US market sell-off resumed on Thursday, as Wall Street's major indexes gave back some gains made in a blistering session the day before. Investors fear Washington's tariffs on China will deepen the trade war between the world's top economies, which will dent global economic growth and disrupt the flow of goods and services.

The Dow Jones Industrial Average tumbled 1,014 points, or 2.5 per cent, while the S&P 500 Index, which on Thursday recorded its best showing since the global financial crisis, slid 3.46 per cent. The Nasdaq Composite Index ended the day with 4.31 per cent losses.

US tariffs on China are effectively 145 per cent, the White House said on Thursday. A White House official clarified that the 125 per cent "reciprocal" tariff rate comes on top of the existing 20 per cent tariff related to fentanyl trafficking. China has so far raised tariffs on US products to 84 per cent and has vowed to fight against the US levies "to the end".

China is one of the US's biggest trade partners. Total trade goods between the US and China last year were worth an estimated $582.4 billion, according to the US Trade Representative.

Thursday's trading session comes a day after US President Donald Trump announced a 90-day pause on new tariffs for countries other than China. All other nations affected by the tariffs will return to a 10 per cent duty as they negotiate with the US.

Markets surged after Mr Trump's tariff reversal. The Dow had its best day since March 2020, while the Nasdaq Composite notched its biggest one-day gain since 2001. The S&P 500 had its best day since 2008.

“The repeated changes in President Trump’s tariff stance have undermined investor confidence in the US government and economy,” Bloomberg quoted Carol Kong, a strategist at the Commonwealth Bank of Australia, as saying. “The sell-offs in US equities, bonds and the dollar suggest market participants are reallocating their portfolios away from US dollar assets.”

Trading Day: Donald Trump’s tariff pause ignites major market surge

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Mr Trump on Thursday told reporters that he thought people were "getting a little bit yippy, a little bit afraid” as his tariff announcements hit markets.

He also said he had watched JP Morgan Chase chief executive Jamie Dimon's interview on Fox Business on Wednesday morning before making his decision. During the interview, Mr Dimon said he believed a recession was a “likely outcome” from the tariff regime and urged Mr Trump to allow Treasury Secretary Scott Bessent to negotiate deals.

The decision also came after a sell-off in the bond market – traditionally seen as a safe haven – on Wednesday that led to a surge in yields. “The bond market is very tricky. I was watching it,” Mr Trump said.

The yield on the 10-year Treasury was lower by about five basis points to 4.345 per cent after a report from the Labour Department showed inflation had cooled slightly more than expected in March. The headline consumer price index fell 0.1 per cent on a monthly basis in March and 2.4 per cent year on year.

Jihan Abdalla contributed to this report