US president has threatened to impose a new 10% tariff on $300bn of Chinese goods

Financial markets around the world fell sharply after Donald Trump threatened to impose a new tariff on $300bn (£248bn) of Chinese goods in a rapid escalation of the trade war between Washington and Beijing.

The FTSE 100 was down more than 2% as markets across Europe tumbled on Friday, continuing a wave of selling pressure around the world in the aftermath of the president’s announcement on Thursday evening.

Wall Street also sold off sharply on Friday as investors continued to digest the president’s decision to bring a trade truce with China to an abrupt end. Ending the worst week this year for US stocks, the the Dow Jones industrial average closed down 98 points (0.4%) at 26,485, having lost more than 280 points earlier in the day.

Trump's fresh $300bn China tariff threat spooks markets – business live Read more

Joshua Mahony, a senior market analyst at the financial trading firm IG, said: “Hopes of a resolution to the US-China trade war have been dashed once again. We are going around in circles, yet there is a feeling that this time we are unlikely to see tariffs averted by simply promising to resume talks.”

In a development likely to have severe ramifications for global growth, Trump said Washington would impose 10% tariffs on $300bn of Chinese goods, in effect placing additional border taxes on the total value of China’s exports to the US.

The White House already charges tariffs of 25% on $250bn of Chinese goods sold in the US as part of the long-running trade standoff. Total Chinese exports to the US were worth $539.7bn last year.

Share prices in London tumbled, with the FTSE 100 closing down more than 150 points, or 2.3%, at 7,407. Germany’s Dax index fell by more than 3%, while France’s CAC 40 index was down 3.6%. Overnight shares in Shanghai dropped by 1.4% while Japan’s Nikkei closed the day down by 2.1%. The MSCI index of world stocks dropped by 0.6% in a sign of selling pressure around the globe.

The yields on US and German government bonds dropped as investors rushed into assets considered as safe havens amid global turmoil, with the yield on 10-year US treasuries falling to 1.832%, the lowest since November 2016.

Trump said the fresh tariffs were a de facto punishment for Chinese noncompliance with previously agreed measures. In a flurry of tweets, the president said: “We thought we had a deal with China three months ago, but sadly, China decided to renegotiate the deal prior to signing.”

Beijing warned of retaliation on Friday and said it would not be bullied by Trump. The foreign ministry spokeswoman Hua Chunying said the country would not give an inch under pressure from Washington, Reuters reported.

“If America does pass these tariffs then China will have to take the necessary countermeasures to protect the country’s core and fundamental interests. We won’t accept any maximum pressure, intimidation or blackmail,” she said.

The US-China trade dispute has had a chilling effect on the world economy as global trade volumes plummet and major companies pause investments. Growth has eased around the world, while several major countries have flirted with recession.

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Factory output has plunged across Europe, dragging down growth in Germany and Italy. Alongside the impact of Brexit, economic growth in Britain has dipped to stalling point amid the trade conflict.

US economic growth has also slowed on the back of the dispute, putting pressure on the US Federal Reserve to cut interest rates to support the economy. The US’s central bank cut rates this week for the first time in a decade.

Tiffany Wilding, an economist at the bond fund manager Pimco, said it expected another rate cut as soon as September.

“Growth in US manufacturing, investment and exports is likely to fall further over the next several months, and the Trump administration’s latest announcement to impose additional tariffs on China is likely to only exacerbate the weakness,” she said.