It’s a risk-off day in Asia as traders assess the implications of U.S. President Donald Trump’s sweeping reciprocal tariffs on China and other Asian nations. Investors are particularly anxious, anticipating Beijing’s response to these new measures that could significantly impact the global market landscape.
On Wednesday, Trump announced reciprocal tariffs on imports from 180 nations, singling out countries like China and the European Union as the worst offenders. This includes a substantial new 34% tariff on Chinese goods, which has been added to the existing 20% tax, culminating in a hefty total of 54%—the highest imposed on any nation. Notably, these tariffs do not extend to Canada and Mexico, highlighting a selective approach to trade penalties.
Market observers now assert that the ball is in China’s court, and the nature of its retaliation could critically influence market sentiment. According to Robin Brooks, managing director and chief economist at the International Institute of Finance, “Everything now depends on China. If China devalues the Yuan in response to today’s large, additional US tariffs, that sets off a global risk-off that hits emerging markets (EMs) first and then – if it persists – spills back to the US.” So far, China has maintained a low profile, but this may soon change in response to the heightened tensions.
Early Thursday, Beijing urged the U.S. to cancel the recently imposed tariffs while simultaneously vowing to retaliate immediately. This backdrop has caused the Chinese yuan to slide to a seven-week low of 7 RMB/USD, leading to losses in Asian equities and creating a bearish outlook for bitcoin (BTC) as it approaches a critical technical juncture.
A depreciation of the yuan could render Chinese goods more attractive internationally, providing a counter to Trump’s tariffs. However, such a move could also create turmoil in currency markets, impacting carry trades and potentially spooking financial markets, as experienced during episodes in 2015 and 2018.
Additionally, any intervention by the People’s Bank of China (PBoC) to stabilize the yuan might bolster the dollar index, inadvertently placing further pressure on risk assets, including stocks and cryptocurrencies.
Reflecting this risk-off sentiment, Asian equities have traded in the red, with Japan’s Nikkei index plummeting to an eight-month low. Concurrently, U.S. stock futures declined by over 2%, indicating a general risk-averse mood among investors.
The premier cryptocurrency, Bitcoin (BTC), saw its value drop from $88,000 to around $82,500 shortly after the announcement of Trump’s tariffs, currently trading near $83,300, as noted in CoinDesk market data.
The cryptocurrency market is also watching closely as Bitcoin’s 50-day simple moving average (SMA) appears set to cross below its 200-day SMA, signaling a “death cross” bearish pattern. While this technical indicator can have a mixed track record in predicting price trends, its occurrence amidst escalating trade tensions merits close monitoring.
In summary, the unfolding situation demands attention as the effects of tariff impositions and potential responses from China could shape market dynamics in the short term. With options pricing currently indicating a bias towards puts or downside protection, investors are advised to stay informed and cautious in the face of these developments.
