US President Donald Trump sent Asian and European markets plunging on Monday after threatening to hike tariffs on $200 billion of Chinese goods at the end of the week in a bid to speed up stuttering trade talks between the economic superpowers.

Shanghai plunged more than five per cent, with the Chinese yuan also taking a battering after the president threw a spanner into the high-level negotiations, which many observers were expecting to wrap up imminently.

“For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods,” Trump tweeted Sunday night. “The 10% will go up to 25% on Friday.”

He added: “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

The warning will throw a shadow over the next round of talks ahead of a visit by a Chinese delegation to Washington this week.

European equities also dived, with key eurozone exchanges Frankfurt and Paris down by around two per cent. London was closed for a public holiday.

‘Sledgehammer, walnut’

However, while a number of news outlets reported that China was considering delaying or cancelling the meeting, a foreign ministry spokesman said a delegation would head to the US as planned.

The two sides have imposed tariffs on $360 billion in two-way trade since last year. But Trump and China’s Xi Jinping agreed a truce in December, fuelling a surge in global stocks for the past four months.

“Trump has taken the proverbial sledgehammer to the walnut this morning and the only two words likely to be on the minds of traders and investors this week are ‘trade talks’,” said Oanda senior market analyst Jeffrey Halley.

Shanghai sank 5.6 per cent as investors returned for the first time since Tuesday. News that the People’s Bank of China would slash the amount of cash lenders must keep in reserve, to support small businesses, had little impact in the face of Trump’s warning.

Hong Kong tumbled 2.9 per cent, Singapore was off 3.1 per cent and Taipei shed 1.8 per cent, while Sydney dropped 0.8 per cent and Wellington was one per cent down.

Yuan tumbles

“Trade had been put to the side by many market participants,” said Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs.

But Trump’s threat now “raises the spectre of a significant hit to growth should these tariffs escalate and should the uncertainty associated with that weigh on investment going forward”, he told Bloomberg TV.

The yuan sank 1.3 per cent at one point against the dollar, its heaviest fall in more than three years.

“Investors will remain bearish on the yuan, as they re-price in trade war risks because the new developments are a reversal of previous positive progress,” said Mizuho Bank senior foreign-exchange strategist Ken Cheung. “The news was unexpected.”

Flight to safety saw the dollar surge across the board, particularly against higher-yielding, higher-risk units.

On oil markets, both main contracts were hammered by worries that a trade war between the world’s top two economies could hit demand.

However, Stephen Innes at SPI Asset Management remained positive.

“We do know the president tends to retreat from more aggressive displays, so I am viewing this thinly veiled threat as political posturing or a tactical decision to apply more pressure on China to put through a trade deal that aligns with the best USA economic interest at heart.

“Despite US-China trade talks hitting an apparent impasse based on [the] tweet, I think a deal will be signed shortly.”