Photo: AFP/Mandel Ngan
Photo: AFP/Mandel Ngan

All three major US equities benchmarks were down by as much as around 2% on Monday morning after President Donald Trump’s Twitter threat that his administration would escalate a trade war with China.

With little news breaking on the day to add certainty to the picture, stocks pared more than half their losses by the afternoon.

China’s Foreign Ministry said on Monday that a Chinese delegation was still “preparing to travel to the US,” but whether or not chief trade negotiator Liu He will go as scheduled is still in question. Liu was expected to travel with an entourage of 100 officials.

Sources on the US side familiar with the trade negotiations reportedly claimed that Trump made his threat after hearing from his top trade negotiator, Trade Representative Robert Lighthizer, that Beijing was backtracking on earlier concessions.

The issue, according to the Bloomberg report on Monday, centers on whether the text of a trade agreement will specify that China must change domestic laws.

Asia Times reported on Sunday, citing a Chinese government source, that the talks were held up on the issue of an enforcement mechanism. China has refused to accept a US demand that the deal permits Washington to impose additional tariffs unilaterally should Beijing fail to comply with terms, the source said.

As of Monday afternoon, there was no indication that China had decided to cancel the next round of talks, which are scheduled to begin in Washington on Wednesday.

The sell-off in New York on Monday followed a several-month-long rally that saw the S&P 500 jump more than 15%.

Stocks in Shanghai slid more than 5% on the news, leading losses across Asia. China’s stock market was leading the world among major markets for much of this year, though the rally has slowed recently amid signs that Beijing will ease off stimulus measures.

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