Threats and deadlines in the US-China trade war caught up with US stock market investors on Tuesday, as they sold off shares on escalating concerns a deal will not materialise between Washington and Beijing by a Friday deadline. US President Donald Trump’s threat to further raise tariffs on US$200 billion worth of Chinese goods imported into the United States to 25 per cent – from the 10 per cent rate they are now subject to – sent the benchmark Standard & Poor’s 500 index and the Dow Jones Industrial Average both down more than 1.5 per cent. The markets have heard two days of sabre-rattling from the Trump administration: On Sunday, Trump unexpectedly posted on Twitter that he was prepared to raise those tariffs. On Monday, after the markets closed, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin charged that China was reneging on its trade commitments. These statements came just days before Chinese Vice-Premier Liu He was to lead a delegation to Washington for an 11th round of talks. “The cause of all of this is the deadline on tariffs. That is clearly what the market is concerned about … I am concerned there will not be an agreement reached in a matter of days and we will then be living with these tariffs, at least through late June when the G20 meets in Osaka, Japan,” said David Bianco, Americas chief investment officer of DWS, the asset management arm of Deutsche Bank in New York. 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. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars.... — Donald J. Trump (@realDonaldTrump) May 5, 2019 <!--//--><![CDATA[// ><!-- //--><!]]> ....of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No! — Donald J. Trump (@realDonaldTrump) May 5, 2019 <!--//--><![CDATA[// ><!-- //--><!]]> After a spike lower, shares managed to gain back some ground. The S&P 500 fell 48.42 points, or 1.65 per cent, to 2,884.05, while the Dow lost 473.39, or 1.79 per cent, to 25,965.09. The technology-laden Nasdaq index dropped 159,53, or 1.96 per cent, to 7,963.76. Semiconductors and technology stocks in general are considered among the most vulnerable to a protracted trade war. Bianco and other analysts said that it would likely prove difficult for China to deliver by the Friday deadline imposed by the Trump administration. While imposition of the higher tariffs would not ruin the US economy, they said, the hike would become a headwind – if only in the uncertainty it would bring – in the second and third quarters of the year. “Trump’s tweets did take people by surprise, but maybe the market got out over its skis to think the deal is both inevitable and imminent … In that sense the market was priced for perfection,” said Libby Cantrill, head of public policy at asset manager Pimco. Beijing refuses to give in to Trump’s latest threat on trade tariffs Cantrill believes a deal will get done, but perhaps not in as linear a direction as previously anticipated, since at this late stage in negotiations the bigger and more intractable issues are up for discussion. “There could be more escalation in the interim. I think the market continues to underestimate (Trump’s) focus and belief that tariffs work,” she said. For the moment, the biggest impact during US trading hours was felt in stocks. Wall Street’s so-called fear index, the CBOE Volatility index, surged to its highest level in more than three months. China still ‘preparing’ delegation for US trip despite Trump’s threat The reaction elsewhere was more muted. Benchmark 10-year US Treasuries rose as some safe-haven buying kicked in and pulled the yield down to roughly 2.45 per cent from Monday’s close at around 2.50 per cent. The US dollar had more of a mixed performance with the greenback losing some 0.44 per cent to trade late at 110.23 yen, while remaining nearly unchanged against the euro, trading around US$1.1190. “Maybe the losses in the stock market today and perhaps tomorrow is the pricing-in of a more escalated trade fight between the US and China,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. “If all those Chinese goods get a tariff placed upon them it might cut roughly 1.5 percentage points off of China's GDP, whereas for the United States it might shave between 0.5 and 0.75 percentage points off of US GDP,” he said.