Monday meltdown feared on Wall Street following Friday’s $2tn wipe-out

Stock markets in Asia slump this morning on renewed fears of US-China trade war

Central banks are braced around the world following Friday’s $2 trillion market rout. Markets in Australasia all fell steeply this morning.

A Monday meltdown is feared this morning stock markets around the world following Friday’s $2 trillion rout, caused by renewed fears of a trade war between the US and China.

And those fears have intensified today following steep falls in share prices as markets across Australasia opened this morning, with stock markets in Australia, Hong Kong, China and South Korea all down heavily this morning.

The stock market price crash was caused by the announcement by China’s government of new restrictions on the export of rare earth minerals, an essential element in modern electronics. In response, President Trump threatened to introduce steep, new tariffs on Chinese imports, re-opening the trade war between the two countries started earlier this year.

“They are becoming very hostile, and sending letters to Countries throughout the World, that they want to impose Export Controls on each and every element of production having to do with Rare Earths, and virtually anything else they can think of, even if it's not manufactured in China," Trump wrote in a social media post on Truth Social.

While the market for rare earths is worth only around $3-4 billion annually, it is an environmentally unfriendly process and therefore relatively costly to conduct in Western markets.

Lower environmental standards combined with a central government desire to dominate a market considered strategically important has provided Chinese producers with a near monopoly, which China’s government often flexes.

China produces around 70% of the world’s supply of rare earths and almost all the processing capacity, giving the country’s government immense leverage over high-tech industries.

Rare earths are used in products as diverse as loudspeakers, televisions and other displays, catalytic converters, LED lights, electric motors, wind turbines, solar panels, lasers, nuclear reactors, medical technology and even camera lenses and glass.

Chucheng Feng, a partner at Hutong Research, said: "Beijing’s underlying logic is straightforward: The US is more vulnerable to a rare earth supply shock than China is to incremental export controls on semiconductors.

"In recent weeks, Chinese policymakers have sent increasingly clear signals that they are prepared to accelerate domestic semiconductor supply chain development at all cost, even if it means absorbing short-term inefficiencies. This gives Beijing confidence that rare earth leverage is more decisive than chip export pressure. In a negotiation setting, it will likely seek a deep tariff cut in exchange for stable REE [rare earth element] flows."

On Friday, the Dow Jones Industrial Average index of the biggest US stocks fell by 800 points, with the S&P 500 index down by 183 points and Nasdaq also down by 3.7%. While companies like Nvidia and Microsoft registered modest stock price drops, companies more exposed to China, like Apple and Tesla, saw bigger falls.

On Sunday evening, a more emollient posting by Trump on Truth Social indicated that there might be a climbdown: “Don't worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn't want Depression for his country, and neither do I. The US wants to help China, not hurt it!!!”

But with stock markets across Asia opening heavily down this morning, the fear is that the stock markets in Europe and the US will follow them. So far, sentiment appears to be stabilising although gold prices hitting a new high indicates considerable concern about future volatility.

Indeed, last week the Bank of England’s Financial Policy Committee (FPC) warned in its latest update on the state of the global financial system that the AI bubble was heading for a major market correction that would almost certainly have a “spillover” into the UK.