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The yuan weakened and Chinese stocks fell after U.S. President Donald Trump said he might impose 10% tariffs on China starting next month.
As of Wednesday afternoon, the CSI 300 index was down 1%. Hong Kong’s Hang Seng Index fell 1.8%, with mainland Chinese companies listed in Hong Kong leading the decline.
The offshore yuan, which is not restricted by Chinese financial authorities, fell 0.3% on Wednesday to 7.29 per dollar.
The dollar rose 0.15% against a basket of currencies including the pound and the yen. Gold prices also rose to an 11-week high of $2,758.
Trump’s whirlwind first day in office suggested imposing 25% tariffs on Canada and Mexico, the U.S.’s largest trading partners, causing traders to slash bets on a renewed trade war since he took office.
Trump said he was considering imposing a 10% tariff to punish China for supplying the opium fentanyl to Mexico and Canada. The United States accuses China of shipping chemicals used to make fentanyl to Mexico, which cartels use to manufacture the drug.
It was a repeat of threats made by the new president during his campaign.
Traders widely expect the dollar to continue to strengthen against the currencies of its major trading partners, including China, as rising Chinese tariffs and lower interest rates weigh on the yuan.
A Bank of America survey showed that about 27% of fund managers said “long USD” was the most crowded trade in January.
Stocks elsewhere in Asia were broadly higher on Wednesday. South Korea’s Kospi rose 1.3% and Japan’s Topix rose 0.9%. Taiwan’s benchmark index rose 1%, while India’s Sensex gained 0.2%.
During the presidential campaign, Trump also threatened to impose a separate 60% tariff on Chinese imports.
