The tariff war escalates: China heavily increases taxes by 84%, causing the US stock market to fall into a negative trend again

Hours after Washington officially imposed new tariffs of up to 104% on Chinese products, China quickly retaliated on Wednesday, announcing an 84% tariff on all American products. The trade war between the world's two largest economies is rapidly escalating towards losing control.

The Chinese Ministry of Finance stated in a statement that starting from April 10th, it will impose an 84% tariff on all US imports, compared to the previously planned rate of 34%.

China has been preparing for the resumption of the trade war since Trump took office, and as early as during the campaign, he threatened to impose a 60% tariff on Chinese products. Although the escalation of the situation has exceeded expectations, Beijing has not backed down so far. Instead, it insists that the ultimate pressure will be on the United States, as many American companies rely heavily on Chinese manufacturing and this dependence is difficult to transfer to the United States in the short term.

In addition, Reuters reported that with the official entry into force of US President Trump's 104% tariff on China, and the fear of the withdrawal of foreign capital caused by the violent selling of US treasury bond, the global financial market suffered a heavy blow on Wednesday.

Since the beginning of this week, market volatility has sharply increased, with the stock market value evaporating trillions of dollars, and commodities and emerging markets also facing fierce impacts. The "epicenter" of the slump is the US treasury bond bonds and the US dollar, the two cornerstones that have long supported the global financial system.

Image source: marketwatch

At present, the market is generally concerned that Trump's large-scale tariff policy may be severe enough to trigger an economic recession, forcing the Federal Reserve to passively cut interest rates. Under such expectations, investors are selling off US bonds one after another, causing bond prices to fall and yields to sharply rise.

The US dollar is usually considered the ultimate safe haven asset during turbulent times, but this time it has fallen overall, and investors have turned to other safe haven tools such as gold and Swiss francs, accelerating their withdrawal from the stock market and industrial commodities.

The yield of the US 10-year treasury bond bond rose 12 basis points on a single day on Wednesday to 4.38%, rising nearly 40 basis points in three days, one of the biggest increases in the same period in the past 25 years.

Last week, the market focused on the stock market, but now the focus has shifted to the more important bond market. This is the 'water pipe' of the financial system, and it is clear that these pipes are starting to get stuck, "said Chris Beauchamp, Chief Strategist of IG

The pressure on the US bond market may also be exacerbated by the upcoming 10-year treasury bond bond auction later in the day. Just the day before, the auction of three-year treasury bond was weak. The market will pay close attention to this auction to test investors' confidence in US bonds.

Economists point out that the current dominant market is a 'Sell America' trading logic. This emotion overwhelms the downward trend in interest rates that should typically be driven by recession concerns

The official implementation of Trump's tariffs has triggered market panic, and China and the United States have fallen into a costly 'collision game'

The US government officially launched a 104% tariff on Chinese imports early Wednesday morning, with no signs of trade easing.

Nomura Securities' Chief China Economist, Lu Ting, said, "China and the United States are caught in an unprecedented and costly 'tough game', and both sides seem to have no intention of making concessions

The constantly changing tariff policies and the shadow of the prolonged US China trade war are continuing to create extreme market volatility.

The S&P 500 index in the United States experienced its most dramatic single day reversal in at least 50 years, transitioning from an opening rally to a closing plunge, with a full day drop of 4.2%. The market value of the index evaporated by $5.8 trillion in four days, setting the worst four-day loss since its establishment in the 1950s.

The stock market panic index VIX surged to 60 this week, the highest level since August last year.

In Europe, the STOXX 600 index fell nearly 3.5%, and its market value has evaporated by about $1.4 trillion since April 1 (the day before Trump announced tariffs).

US stock index futures maintained a negative trend, with daily declines ranging from 0.3% to 0.7%.

Trump accuses China of manipulating exchange rates again, Wall Street worries about global economic recession

Trump reiterated on Tuesday evening that China is manipulating the renminbi exchange rate to offset the impact of tariffs, but he believes that China will eventually reach an agreement.

Morgan Stanley analysts warn that the rapid escalation of US tariffs on China is enough to disrupt the global economy and trigger a recession.

Just this Chinese tariff alone is equivalent to a huge tax burden of $400 billion for American companies and households, and the Chinese yuan may become a 'release valve' for Chinese decision-makers to ease the pressure

Oil prices fell nearly 5% due to market concerns about the outlook for global energy demand. The latest price of Brent crude oil futures is $59.90 per barrel, a decrease of 4.6%.

Gold has regained its upward momentum, with the latest increase of 1.9% to $3040 per ounce.

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