Fears of a full-blown trade war between the United States and China have battered Asian shares again despite signs that Washington is prepared to negotiate deals around the region.

South Korea announced on Monday that it had won an exemption from US duties on steel imports, easing some anxieties about damaging tariffs for one of Asia’s biggest economies.

Futures trading on Wall Street pointed to a rise in the markets later on Monday after the Wall Street Journal reported the US and China have started behind-the-scenes negotiations to improve American access to Chinese markets.

The Dow Jones industrial average is on course to jump 0.8%, according to online trader IG Markets, while the E-Mini futures for the S&P 500 leapt 0.6% on the news, an unusual move during early Asian hours.

The US treasury secretary, Steve Mnuchin, said at the weekend that Trump was not ready to back down but added that he had “very productive conversations” with Chinese officials on the issue.

However, the news was little consolation for Asian shares which were left nursing their wounds. Japan’s Nikkei was down 0.4% percent after falling to a near six-month trough at the open. The Australian ASX200 was off 0.7% and Hong Kong was down 0.8%. Shares in mainland China were down 1.6%.

One brighter light was South Korea’s benchmark Kospi index, which was up 0.1% after news of the country’s exemption from the steeel tariffs, although it has accepted quotas on its steel exports to the US and given ground on car industry regulations.

Donald Trump signed a memorandum on Friday that could impose tariffs on up to $60bn of imports from China, although the measures have a 30-day consultation period before they take effect.



The tariffs are on top of additional duties on steel and aluminium on a number of countries including China, which has already hit back with its own plans to slap duties on up to $3bn of U.S. imports.

U.S. shares were also hit hard last week, with the Dow falling 1.8% on Friday, the S&P 500 declining 2.1% and the Nasdaq off 2.4%.

“A faltering US stock market would be contagious, which it has been since Wednesday,” Capital Economics said in a note. “Stocks in emerging market countries with close to ties to China remain especially vulnerable, as do companies around the world which could be affected by Chinese retaliation,” it added.

But Stephen Innes, head of Asia-Pacific trading at Oanda in Hong Kong, said that China’s reaction to the planned tariffs was the key.

“How China escalates will determine the pace of play, but Chinese retaliation so far has been more genial than initially thought, and they have made efforts for a diplomatic solution,” he said.

“Although China is willing to negotiate and is likely to offer compromises, uncertainty and the fear of escalation will likely hold back market sentiment in the short run.”

Amid continued uncertainty and volatility, investors piled into the Japanese yen, traditionally a safe haven asset thanks to the country’s massive current account surplus.

The yen held at 104.90 to the US dollar after last week going below 105 for the first time since November 2016. The euro, another perceived haven for nervous investors, was up 0.1% at $1.2367.

The dollar index tracking the greenback against six other major currencies, was near a one-month low at 89.423. In commodities, international Brent crude futures opened above $70 per barrel for the first time since January.