Today, traders in Asia are adopting a risk-off stance as they await Beijing’s reaction to U.S. President Donald Trump’s extensive reciprocal tariffs against China and several other Asian countries.
On Wednesday, Trump declared reciprocal tariffs on imports from 180 countries, which included increased taxes on trading partners he labeled as the worst offenders, specifically highlighting China and the European Union.
He introduced a new 34% tariff on Chinese goods, stacking it onto the existing 20% tax, resulting in a total levy of 54%—the highest imposed on any nation. Notably, this latest measure does not impact Canada and Mexico.
Analysts believe that the next move is up to China, and how it retaliates could greatly influence market reactions.
“The situation now hinges on China. Should China decide to devalue the Yuan in response to the extensive new U.S. tariffs, it could trigger a global risk-off sentiment, initially affecting emerging markets, and if it continues, potentially reaching the U.S. as well. Until now, China has maintained a low profile, but that may change,” said Robin Brooks, managing director and chief economist at the International Institute of Finance, via a post on X.
On early Thursday, Beijing called on the U.S. to remove tariffs while promising immediate retaliation. Concurrently, the Chinese yuan sank to a seven-week low of 7 RMB/USD, contributing to losses in Asian equities along with an impending death cross for bitcoin (BTC).
A potential strategy for countering Trump’s tariffs is allowing the yuan to depreciate, making Chinese products more competitive internationally. However, this could pose risks to carry trade (currency) strategies and unsettle financial markets, as recorded in the events of 2015 and 2018.
Moreover, any likely intervention by the People’s Bank of China (PBoC) to prevent a swift decline of the yuan could inadvertently strengthen the dollar index, which would exert additional pressure on risk assets, including stocks and cryptocurrencies.
It is not surprising that Asian equities were trading down as of press time, with Japan’s Nikkei experiencing an eight-month low. U.S. stock futures also fell over 2%, indicating a shift towards risk-off sentiment.
Bitcoin (BTC), currently the leading cryptocurrency by market capitalization, was trading around $83,300, having decreased from $88,000 to $82,500 after the announcement of Trump’s tariffs, based on CoinDesk market data.
The 50-day simple moving average (SMA) for the cryptocurrency’s spot price seems poised to drop below its 200-day SMA, signaling the development of a “death cross,” a bearish technical indicator.
Although the death cross has a mixed history of forecasting price trends, its emergence during heightening trade tensions is significant. Additionally, options pricing is currently leaning toward puts or downside protection leading up to the June expiration, as reported by Deribit and Amberdata.
