U.S. President Donald Trump triggered a reciprocal tariff that caused a significant drop in the Chinese stock market, with all indices setting new records for their declines. Since the U.S. still has more tariffs to impose, predicting the bottom is challenging. However, there are forecasts that the market could rebound if China announces large-scale economic stimulus measures to offset the tariff impact.
According to the Hong Kong Stock Exchange on the 7th, the Hang Seng Index, the representative index of Hong Kong, closed at 19,710.26, down 13.74% from the previous trading day. This marks the largest daily drop in 16 years and 5 months since Oct. 27, 2008 (-12.70%) during the global financial crisis. The South China Morning Post reported that 'most of the Hang Seng Index stocks fell' and noted, 'Hong Kong, a free port maintaining a separate tariff alliance from mainland China, has been included in the scope of tariffs imposed by the U.S. on Chinese exports.'
Mainland China's and Taiwan's stock markets also could not escape the significant drops. The Shanghai Composite Index closed at 3,096.58, down 7.34% from the previous trading day, marking the largest drop since March 2, 2020 (-7.72%). The Shenzhen Composite Index also plummeted by 9.66%. The last time there was a drop of around 9% was on Feb. 27, 2007 (-9.29%). Taiwan's representative stock price index, the Taiex, fell 9.70% to close at 19,232.35, dropping below 20,000 for the first time in about 8 months since Aug. 5 of last year (19,830.88, -8.5%). Taiwan's top listed company by market capitalization, the world's largest foundry TSMC, and the world's largest electronics manufacturer Foxconn, both saw declines of -9.98% and -9.77%, respectively, nearly reaching the daily fluctuation limit (±10%).
The Chinese stock market is significantly affected by the U.S. reciprocal tariffs. On the 4th (local time), the U.S. started imposing a basic 10% tariff on all countries and plans to implement differentiated individual tariffs by country starting on the 9th. As a result, China will face a total tariff of 34%, while Taiwan will incur a total of 32%. In particular, when considering the additional tariffs of 10% received twice in February and March, China will end up facing a total tariff of 54%. In response, China has already retaliated with a 34% tariff at the same level as the U.S. Bloomberg News reported, 'China is discussing accelerating all stimulus measures to offset the tariff damage, but investors are focusing on the likelihood of an economic disaster.'
Taiwan faces issues not only from the immediate 32% high tariff but also from the potential for additional semiconductor tariffs, raising concerns among investors. Trump plans to impose a 25% item-specific tariff on semiconductors, wood, copper, pharmaceuticals, and more soon. However, President Lai Ching-te of Taiwan stated that they will not retaliate against the U.S. and will discuss a '0% tariff.'
With the Trump administration announcing that the scheduled tariffs will be implemented without delay, there are forecasts that the mass exodus from the Chinese stock market may continue indefinitely. Notably, Trump stated on the 6th, 'The trade deficit with China amounts to $1 trillion,' and added, 'I will not negotiate until this is resolved.' Vincent Chan, a Chinese analyst from Hong Kong research firm Aletheia Capital, noted, 'The global trade system that has lasted for the past 90 years is collapsing, making it difficult to predict economic impacts and where the market bottom is.'
There are also views that the stock market could rebound if China announces robust economic stimulus measures. Kenny Wen, head of Asia investment strategy at Hong Kong firm KGI Asia, said, 'Individual investors could jump into the market later this week, viewing the recent decline as a buying opportunity.'