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U.S. stock futures and Asian shares fell on Tuesday after U.S. President Donald Trump said he will impose tariffs on an additional $200-billion worth of Chinese imports, in a sharp escalation of the trade conflict between the world’s two biggest economies.

The tariffs will be set at 10 per cent.

Trump spared smart watches from Apple and some other consumer products such as bicycle helmets, but he warned that if China takes retaliatory action he will pursue tariffs on approximately $267-billion of goods. “Considering his latest comments as well as recent falls in his support, it is hard to expect Trump to soften his stance on trade in the near future,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.15 per cent in early trade but Japan’s Nikkei bucked the trend to gain 0.4 per cent.

S&P500 E-mini futures dropped 0.3 per cent in Asian trade on Tuesday.

That came after all three major U.S. indexes fell on Monday, with the tech-heavy Nasdaq posting its biggest percentage loss since late July.

Apple Inc and, the world’s top two companies by market capitalization, fell 2.6 per cent and 3.2 per cent respectively, marking their biggest fall since late April, on worries about new tariffs, which were unveiled after U.S. market close on Monday.

Still, many market players expect the U.S. economy to ride out the impact for now.

“Tariffs on another $200-billion will mean about 12 per cent of US imports have seen a tariff hike. That means an average tariff increase of 1.6 per cent across all imports, so tiny compared to the 1930s, when they were 20 per cent,” said Shane Oliver, chief economist at AMP Capital Investors in Sydney.

“I still don’t see a resolution between China and the U.S. until after U.S. mid-terms elections in November to early 2019.”

In the currency market, the yen gained slightly while the risk-sensitive Australian dollar dropped.

The yen strengthened slightly to 111.74 per dollar, off Friday’s two-month low of 112.175.

The Australian dollar shed as much as 0.5 per cent in early trade to $0.7144.

The euro stood little changed at $1.1673.

Oil prices fell on worries rising trade tensions between the U.S. and China could dent global crude demand.

U.S. West Texas Intermediate (WTI) crude futures fell 0.4 per cent to $68.61 a barrel while international benchmark Brent futures lost 0.4 per cent to $77.72 per barrel.

Yet the 10-year U.S. Treasuries yield hit a near four-month high of 3.0220 per cent on Monday, extending its rise on the back of a recent run of solid U.S. data, before stepping back to 2.981 per cent.

“U.S. bond yields have been supported by strong U.S. data, such as wages. Tariffs are not necessarily positive for bonds as they could be inflationary,” said Tomoaki Shishido, fixed income strategist at Nomura Securities.

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