China’s Markets Under Threat From Risk of Renewed US Trade War

(Bloomberg) — The prospect of a revived trade war between Beijing and Washington threatens to undermine this year’s blistering rally in Chinese stocks and weigh on the yuan.

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Global equities took a hit in US hours on Friday after President Donald Trump warned he would impose a “massive” increase of tariffs on Chinese goods. He later said he would put an additional 100% tariff on China from Nov. 1, as well as place export controls on critical software. He spoke out after Beijing unveiled curbs on the export of rare earths earlier in the week.

While Chinese markets will get their first chance to respond on Monday, any following of the US selloff may be tempered by weekend signals from the White House that it’s open to a deal and Trump declaring the US wanted to help, not hurt China.

Currencies including the Australian dollar edged higher in early trading Monday and the offshore yuan inched 0.1% higher against the dollar to pare Friday’s loss.

China’s equities and yuan may slide though “I’d expect that pressure to be more modest than I would’ve done a few hours ago before the Trump” post on social media, said Michael Brown, a strategist at Pepperstone Group. “But some weakness is the expectation.”

A gauge of Chinese stocks listed in the US plunged more than 6% on Friday in its biggest loss since trade tensions escalated in April. American equities also tumbled, with Nvidia Corp., which is caught in the middle of the two nations’ export controls negotiations, sliding nearly 5%. Emerging market currencies weakened.

“China’s markets will likely open under pressure Monday,” said Haris Khurshid, chief investment officer at Chicago-based Karobaar Capital LP. “The tariff headline and new tech restrictions will spook sentiment right out of the gate.”

A lasting deterioration of ties between the two largest economies could imperil one of the world’s best performing stock markets this year, as well as renew doubt over China’s investability.

Hong Kong’s Hang Seng Index has climbed 31% in 2025 as Chinese equities benefited from the trade truce with the US in addition to optimism over the country’s growing heft in artificial intelligence. Alibaba Group Holding Ltd. has surged more than 100%, with Tencent Holdings Ltd. up almost 60%. The rally comes after the Hang Seng fell for four straight years through 2023.