However, the losses were tempered slightly by a more conciliatory tone on Sunday when Trump described Chinese counterpart Xi Jinping as “respected”.
Trump wrote on social media Friday that he would impose an additional 100% tariff on China and threatened to cancel a summit with Xi, citing Beijing’s export curbs on rare earth minerals used in a range of goods, including smartphones, electric vehicles and military hardware.
The extra US levies, plus export controls on “any and all critical software”, would come into effect from Nov 1 in retaliation for what he called Beijing’s “extraordinarily aggressive” moves.
“There is no way that China should be allowed to hold the World ‘captive’,” he said.
Chinese products currently face US tariffs of 30%, while Beijing’s retaliatory tolls are currently at 10%.
The outburst sent Wall Street into a spiral, with the Nasdaq losing more than 3%, and came as investors were already on edge over a recent tech-led surge that has stoked fears of a stock bubble.
However, investors took a little heart from a post Sunday in which he said, “The U.S.A. wants to help China, not hurt it!!!” and added that “respected President Xi (Jinping)… doesn’t want Depression for his country.”
Beijing, in turn, accused Washington of acting unfairly, and the Ministry of Commerce on Sunday called the threat a “typical example of ‘double standards'”.
“Threatening high tariffs at every turn is not the right approach to engaging with China,” it said in an online statement.
The announcement came after months of fragile peace between the economic superpowers as they looked to reach a full trade deal after Trump’s tariff bombshell in April that saw the two sides ramp up tit-for-tat levies to eye-watering levels.
Markets across Asia sank into the red, with Hong Kong shedding more than 2% and Shanghai more than 1%. Sydney, Singapore, Seoul, Taipei and Manila were also well down.
Still, Trump’s latest comments provided a little support, with US futures soaring more than 1%.
Gold, a safe-haven asset in times of turmoil and uncertainty, continued its rise, touching another record of US$4,060.
There was also a healthy bounce for oil, which tanked Friday on Trump’s remarks, which compounded selling of the commodity owing to the Israel-Hamas peace deal that soothed worries about supplies from the Middle East.
“Despite the possibility of a replay of how the markets reacted back in April, we believe the looming threat may be short-lived,” said Morningstar’s Kai Wang.
“Both sides appeared to be posturing ahead of their Nov 1 meeting when the tariff truce is set to expire,” he added.
He also pointed out that the US government shutdown was “increasingly dampening consumer sentiment in the US, and we do not believe Trump wants to re-escalate foreign policy issues without solving the domestic shutdown first”.