WASHINGTON (Reuters): President Donald Trump’s sweeping tariff plans hammered global financial markets on Monday and U.S. stocks braced for more turmoil after he warned foreign governments they would have to pay “a lot of money” to lift the levies he called “medicine.”
Asian equity markets sank, European shares crashed to a 16-month-low and oil prices plummeted as investors feared the duties Trump announced last week could lead to higher prices, weaker demand and potentially a global recession.
Wall Street main indexes opened sharply lower on Monday, with the S&P 500 on track to confirm bear market territory, as investors sought refuge in government bonds.
Ministers in the European Union, which has been divided on how strongly to punch back against Trump without risking more pain for their own companies and consumers, gathered on Monday as they sought to form a united front.
They broadly agreed that the bloc should prioritize negotiations to remove tariffs over retaliation even as it prepared a first set of targeted countermeasures.
Goldman Sachs raised the odds of a U.S. recession to 45% in the next 12 months, joining other investment banks in revising their forecast. JPMorgan economists now estimate the tariffs pushing the U.S. economy into a 0.3% contraction, down from an earlier estimate of 1.3% growth of gross domestic product.
“People are afraid the worst is yet to come. They’re worried about a market crash,” said Robert Pavlik, senior portfolio manager at Dakota Wealth Management in Connecticut.
“They’re worried about what follows - a recession here domestically and then globally, leading to a possible depression.”
With U.S. markets braced for another battering, Trump showed no sign of relaxing his tariff policy on Monday.
“Be Strong, Courageous, and Patient, and GREATNESS will be the result!” he wrote on Truth Social, his social media platform.
Trump accused other countries of “taking advantage of the Good OL’ USA!” on international trade and said “our past ‘leaders’ are to blame for allowing this, and so much else, to happen to our Country.”
“MAKE AMERICA GREAT AGAIN!”
Trump has insisted his tariffs are necessary to rebalance global trade and rebuild domestic manufacturing. He has singled out China as “the biggest abuser of them all,” blasting Beijing for increasing its own tariffs in retaliation.
He also repeated a call for the U.S. Federal Reserve (Fed) to cut interest rates.
On Friday, Fed Chair Jerome Powell warned that the tariffs could increase inflation, and he said “there’s a lot of waiting and seeing going on, including by us,” before any decisions would be made.
Speaking to reporters earlier aboard Air Force One on Sunday, Trump had brushed off losses that have wiped out trillions of dollars from world stock markets.
“I don’t want anything to go down. But sometimes you have to take medicine to fix something,” he said as he returned from a weekend of golf in Florida.
‘Nuclear’ winter
Trump said he had spoken to leaders from Europe and Asia over the weekend, who hope to convince him to lower tariffs as high as 50% due to take effect this week. The baseline 10% tax took effect on Saturday.
“They want to talk, but there’s no talk unless they pay us a lot of money on a yearly basis,” Trump said.
The Dow Jones Industrial Average fell 1,212.98 points, or 3.17%, to 37,101.88 in early trading on Monday. The S&P 500 lost 181.37 points, or 3.57%, to 4,892.71, and the Nasdaq Composite declined 623.23 points, or 4%, to 14,964.56.
The tariff announcement has met with bewildered condemnation from other leaders and triggered retaliatory levies from China, the world’s No.2 economy, which called Trump’s behavior “economic bullying.”
After stocks in mainland China and Hong Kong cratered on Monday, China’s sovereign fund stepped in to try to stabilize the market.
Shares in Taiwan plummeted almost 10% - the biggest one-day percentage fall on record.
European defense shares, previously hot performers thanks to expectations of a spending boom by states, were on course for their biggest one-day decline since April 2020.
Wall Street leaders issued warnings on U.S. tariffs, with JPMorgan Chase CEO Jamie Dimon saying they could have lasting negative consequences, while fund manager Bill Ackman said they could lead to an “economic nuclear winter.”
Elon Musk, the world’s richest man and a close ally of Trump in a crusade to cut government spending, said on Saturday that he hoped to see zero tariffs between the U.S. and Europe. On Monday, he posted on social media a video of economist Milton Friedman extolling the virtues of the international trading system.
Tactics, or new regime?
Investors and political leaders have struggled to determine whether Trump’s tariffs are part of a permanent new regime or a negotiating tactic to win concessions from other countries.
“From the European side, we cannot just roll over,” Danish foreign minister Lars Lokke Rasmussen said ahead of the EU meeting.
Some worry, however, that a forceful response risks even more blowback on European exporters of everything from French Cognac and Italian wine to German cars.
Germany’s Friedrich Merz, who is set to take charge of Europe’s largest economy within weeks, told Reuters that the market turmoil underscored the need for his country to regain competitiveness. He called for tax cuts and lower energy prices.
In a sign that companies in Germany and elsewhere are grappling with the fallout, Volkswagen’s Audi is holding back cars that arrived in U.S. ports after April 2 because of the newly imposed 25% auto tariff.
Prime Minister Shigeru Ishiba of Japan, one of Washington’s closest allies in Asia, is also trying to cut a deal with Trump but warned it may take time.
Investors are now betting the growing risk of a recession could see the Federal Reserve cut rates as early as next month. Fed’s Powell has so far indicated he is in no rush though.
Some governments in Asia have already signaled a willingness to engage with the U.S. to avoid the duties.
Taiwan’s leader, Lai Ching-te, on Sunday offered zero tariffs as the basis for talks, while an Indian government official said Delhi does not plan to retaliate. Vietnamese leader To Lam agreed in a phone call with Trump on Friday to discuss a deal.
In Europe, Dutch Trade Minister Reinette Klever said on Monday that starting talks with Washington was essential.
“We need to get ourselves at the table with the Americans and see how we can lower these tariffs,” she said.
[Collection]thefrontierpost.com