Asian stocks, bonds drop as US-China trade spat heats up

Asian shares fell at the open after further tariff tensions between the world’s two biggest economies sent US stocks, bonds and the dollar lower, underscoring the fragile appetite for risk globally.

Indexes in Japan, Australia and South Korea retreated after the S&P 500 dropped 3.5% Thursday, as market euphoria turned to angst after the White House clarified US tariffs on China rose to 145%. The dollar extended its losses after suffering its worst day since 2022. The Swiss franc touched the highest level in a decade, the yen strengthened and gold set a new high, showing their appeal as havens. US Treasuries resumed a selloff from earlier in the week.

Just a day after financial markets cheered President Donald Trump’s decision to delay some of his tariff plans, the US assets selloff suggests skepticism about the planned trade talks and escalating tensions with China. The much-vaunted America-first trade — buying up assets that win when the US outperforms the rest of the world — is also reversing on concern that the steepest increase in US levies in a century will hammer the economy.

“Investors are sobering up and realizing that the US-China ‘food fight’ will probably get worse before it gets better,” said Michael Bailey at FBB Capital Partners.

News of the higher levy on Chinese goods appeared to outweigh signals from Trump that the US is close to a first deal on tariffs, without naming the country. Late Wednesday in Washington the president appeared to suggest further pressure on Mexico over water rights.

“The Trump administration’s stance has evolved from an all-out trade war against everyone, to a concentrated trade war against China,” said Nicolas Oudin of Gavekal Research. “Most investors believe that China shot itself in the foot by retaliating. The view from Beijing is different. Many in China read the ‘Trump fold’ as a sign of US weakness, and therefore as a validation of China’s decision to escalate.”

Chinese shares rose Thursday on expectations the government will come out with more economic stimulus. China’s top leaders were due to meet in Beijing to discuss the measures. Elsewhere, US-listed shares of Chinese companies fell on a report that the Trump administration is considering a push to delist the stocks of Chinese public companies that trade on American exchanges, citing unnamed sources.

The trade tensions were also reflected in the currency market with the dollar declining and the yen gaining. In the bond market, the 10-year Treasury yield rose four basis points, adding to the nine on Thursday as investors continued to sell down holdings of the debt. Australian and New Zealand yields also rose Friday.

Gains for the yen pushed the Japanese currency to around 143 per dollar on Friday, a level not seen since October. A gauge of emerging markets currencies rose about 0.6%, on pace for its best day since August. The offshore yuan rose for a third day.

The options premium paid to hedge against a decline in the US currency against a basket of peers over the next week reached the highest since March of 2020, relative to positioning for gains.

“We still believe the anxiety around tariffs are alive and well,” said Nathan Thooft at Manulife Investment Management. “Volatility works in both directions — down and up. The path forward likely includes more market swings as we do not have a conclusion. In fact, we have the opposite, a likely extension of the tariff negotiation process.”

In commodities, oil was slightly lower Friday, while gold extended gains. Bitcoin edged lower early Friday to around $79,600.