Chinese stocks plunged Tuesday after U.S. President Donald Trump said he had told U.S. officials to prepare tariffs on up to $400 billion of goods imported from China.
More than one-quarter of stocks traded on the Shanghai exchange plummeted by 10 percent, the one-day limit for Chinese stocks. The Shanghai Composite Index dived below 3,000, the level that many Chinese market watchers believe is likely to prompt the government to intervene in the market. The level was breached in stock market crashes in 2015 and 2016.
The Shanghai Composite Index was down by as much as 5 percent before recovering some ground later in the day.
China’s stocks sold off last week after government data revealed the economy appeared to be weaker than previously thought. President Trump’s tariff announcement, however, came as a shock to many investors. In recent weeks, many investors in China and elsewhere have thought trade relations between the U.S. and China had a better-than-even chance of improving.
A trade war with the U.S. could slow China’s economy even more. The U.S. is by far China’s largest trading partner and China runs the world’s largest trade deficit with the U.S.