By Sherry Qin

Shares in Hong Kong started the first session after the Lunar New Year on a weak note, following President Trump's announcement of a 10% tariff on Chinese goods.

Hong Kong's benchmark Hang Seng Index fell as much as 2.3% in the early session before trimming losses to 0.7% at midday. Mainland Chinese markets are closed for the Lunar New Year holiday.

Trump imposed an additional 10% tariff on imports from China, along with a 25% levy on goods from Canada and Mexico, effective Tuesday.

Trump's latest tariff announcement caught markets by surprise, as investors had previously dismissed tariff threats due to unfulfilled pledges during his first term, according to Saxo Markets' chief macro strategist John J. Hardy.

Now, markets must adjust to this new reality, he said.

In Hong Kong, home appliances and auto stocks led the losses in the morning session. Midea Group dropped 4.1%, Haier Smart Home fell 3.3%, Li Auto declined 6.3% and NIO was down 4.3%.

Nomura analyst Chetan Seth believes merchandise categories where the U.S. runs a trade deficit with China, such as consumer electronics and household goods, could be more exposed to the tariffs.

In response to the tariffs, China's Ministry of Commerce said on Sunday that it would file a lawsuit with the World Trade Organization and "take other corresponding countermeasures to firmly safeguard its rights and interests."

Analysts expect China will likely keep negotiations open before resorting to immediate retaliation.

"The 10% tariff is not a big shock to China's economy," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

While analysts view the tariff hike as relatively small, markets are bracing for a potential escalation of the trade war.

"The question now is if the tariff war is going to be a long-lasting trend due to retaliatory measures, or there will be a quick end as negotiations start," Nomura's Seth said.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

February 02, 2025 23:53 ET (04:53 GMT)

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