Trade War Tensions Escalate Again, Leading to Decline in Chinese Stocks

Chinese stocks fell as the trade tensions with the US escalated, following President Donald Trump’s commitment to implement larger tariffs.

The Hang Seng China Enterprises Index plummeted by as much as 3.1%, while the onshore CSI 300 Index decreased by 1.2%. This marked the end of a brief recovery observed on Tuesday.

Investor confidence in both China and the US has been severely impacted by the ongoing trade conflict. A series of threats and defiant reactions have compelled investors to recognize that more challenging times could lie ahead. Trump has announced an overall tariff rate of 104% on Chinese products, significantly escalating his previous rate in response to China’s retaliation.

“With Trump indicating a strict approach towards China, the markets are preparing for increased tension, and the outlook for Chinese stocks remains unstable,” stated Charu Chanana, chief investment strategist at Saxo Markets. “A great deal now depends on how China chooses to respond. If Chinese officials retaliate strongly, it could further dampen investor sentiment unless it is accompanied by significant domestic stimulus — and not merely promises of policy changes.”

China has pledged to “fight to the end” against the new tariffs, labeling the escalation as “a mistake on top of a mistake.”

The trade conflict is testing China’s capacity to uplift the stock market during turbulent periods. While Trump appears unconcerned about market reactions, Beijing is employing various strategies: easing currency controls, offering loans to state-owned enterprises, relaxing investment regulations for insurers, and enlisting state-backed funds to buy stocks and exchange-traded funds.

On Tuesday, inflows into ETFs tied to the so-called national team reached a staggering 87 billion yuan ($11.9 billion), marking an all-time high for the second consecutive day. This indicates that state funds rallied significantly to support the market.

Chinese state media took an upbeat stance as these interventions helped boost the markets on Tuesday. The China Securities Journal reported that authorities had devised a more refined strategy to stabilize markets, with additional room to enhance investor confidence. Shanghai Securities News referred to a new phase in the development of China’s capital market stabilization mechanism.

Global stock markets have dropped dramatically in reaction to Trump’s tariffs, with the S&P 500 now down over 15% this year. Nevertheless, Trump continues to highlight the benefits, asserting on Tuesday that he anticipates the tariffs will generate revenue for the US Treasury and protect essential industries.

The offshore yuan hit a record low on Tuesday as the central bank eased its restrictions. The currency broke through the closely monitored threshold of 7.20 yuan per dollar, which many traders viewed as a critical boundary.

© 2025 Bloomberg

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