Main news content: Chinese equity markets experienced a sharp sell-off in volatile trading on Monday as US President Donald Trump’s threat of a 100% tariff on Chinese goods reignited fears of an all-out trade war and spurred significant profit-taking. The blue-chip CSI300 Index declined 1.8%, and the Shanghai Composite was down 1.3%. In Hong Kong, the Hang Seng benchmark slumped 3.5%, pulling shares down from their recent decade-highs and causing the Hang Seng Volatility Index to spike 30% to its highest level since April 2025. This downturn was exacerbated by thin global trading volumes due to public holidays in the U.S. and Japan, intensifying market fragility.
The renewed tensions stem from Trump’s Friday announcement of additional 100% levies and new export controls on critical software, in direct reprisal against China’s recent move to expand export curbs on rare earth minerals. However, two sectors defied the broader market slump: China’s rare earth sector jumped more than 4% to a record high, and semiconductor stocks gained, as investors bet that Beijing will leverage its monopoly on these critical materials and double down on nurturing domestic chipmaking capabilities against US restrictions.Despite the heavy market losses, many analysts believe the sell-off may be short-lived, suggesting that the escalation is primarily a negotiating tactic. The market is currently holding its breath for the anticipated in-person meeting between Trump and Chinese President Xi Jinping at the APEC summit in South Korea later this month. Analysts at Changjiang Securities believe the “cost of large-scale conflict is too high for both powers” and predict the situation will resolve as “TACO” (Trump Always Chickens Out) plays out, although others caution that the underlying geopolitical and trade clashes are inevitable.
