(CN) — Stock markets around the world plunged on Monday as the fallout from U.S. President Donald Trump’s draconian tariffs policy continued to spook investors and raise fears of a global trade war and recession.
Trump’s sweeping tariffs last Wednesday are sparking a trade war, as seen with China retaliating on Friday with its own 34% tariffs on U.S. goods. Many Chinese goods face import duties of more than 50% in the U.S.
On Monday, Hong Kong’s benchmark Hang Seng Index was hit the hardest, closing 13.2% down, the biggest drop since the 1997 Asian financial crisis. The index was closed Friday for a national holiday, making it particularly vulnerable to shocks on Monday.
Most Asian and European stock markets were pummeled, a reflection of Trump’s tough tariffs stance against both continents. Trump imposed a 20% tariff on the European Union, a move that shocked and angered European allies, and even higher duties on many Asian nations, including Japan and South Korea, staunch allies.
U.S. stocks opened sharply down before rallying on an unsubstantiated report Trump was considering a 90-day pause on the tariffs. The White House denied the report, leaving markets jittery.
Stocks in China fell by 7.3% and by more than 8% in Japan. A similar story played out in Europe with stocks falling sharply in the United Kingdom, Italy, the Netherlands, France, Spain, Sweden and Germany.
On Monday, EU trade ministers met to discuss how the bloc might strike back, though coming up with a united response will be tricky for the 27-nation union. The EU tariffs are set to come into force on Wednesday. EU leaders say they hope to strike a deal with Trump to remove the tariffs, but they are talking about hitting back hard if necessary.
Over the weekend, Trump showed no remorse for his stunning decision to upend the global trading system with his higher-than-expected tariffs on both allies and foes — and in the process crash stock markets. He announced his tariffs at a Rose Garden event he dubbed “Liberation Day.”
“Now what’s going to happen with the market? I can’t tell you, but I can tell you, our country has gotten a lot stronger, and eventually it’ll be a country like no other, it’ll be the most dominant country economically in the world,” Trump told reporters Sunday on Air Force One.
When asked about how much stock market pain he was willing to tolerate, he compared what’s happening to taking medicine.
“I don’t want anything to go down, but sometimes you have to take medicine to fix something and we have such a horrible — we have been treated so badly by other countries because we had stupid leadership that allowed this to happen,” he said.
Economists are baffled and dismayed by Trump’s tariffs, though he had made his intention to use them a central theme to his presidential campaign. The president and many of his closest economic advisers believe tariffs can be used to rebuild American manufacturing and reduce U.S. debt.
“It’s hard to put in context the magnitude of the shock that has reverberated since ‘Liberation Day’ last Wednesday,” analysts with Deutsche Bank said in a briefing note Monday.
On Thursday and Friday, U.S. stocks suffered their worst two-day shock since World War II, the analysts said. The plunge was similar to one-day crashes in 1987, in 2008 with the global financial collapse and in 2020 with the coronavirus pandemic.
The analysts said it was the “biggest shock to the global trading system” since former U.S. President Richard Nixon removed the U.S. dollar in 1971 from the gold standard and represents the biggest tax increase for the U.S. consumer since the 1968 Revenue and Expenditure Control Act during the Vietnam War. Tariffs amount to price increases on imported goods that consumers end up paying.
By late Monday, Trump seemed unswayed by the fierce market reaction to his tariffs and determined to use tariffs as a cudgel to extract concessions from trading partners he views as taking advantage of the U.S.
On Truth Social, his social media platform, he threatened China with even higher import duties unless it backed down from its retaliatory tariffs. He also warned he would end trade talks with Beijing unless it rescinded its Friday decision.
He said other countries considering retaliatory duties would also face higher U.S. tariffs. At the same time, he said the U.S. was in talks with countries “from all over the world.”
“Tough but fair parameters are being set,” he wrote.
He talked by telephone with Japanese Prime Minister Shigeru Ishiba and said Japan was sending a team to negotiate. “They don’t take our cars, but we take millions of theirs,” he wrote. “Likewise agriculture, and many other ‘things.’ It all has to change, but especially with China!!!”
European Commission President Ursula von der Leyen, the EU’s chief executive, on Monday said the bloc was ready to negotiate with the U.S. and that the EU was ready to strike a deal where tariffs would be eliminated on both sides of the Atlantic for automobiles and industrial goods.
“Europe is always ready for a good deal. So we keep it on the table,” she said. But she added the EU was “prepared to respond through countermeasures and defend our interests.”
Following a meeting of EU trade ministers in Luxembourg, EU trade commissioner Maroš Šefčovič said the EU found itself “in a tough spot” with the U.S. with 70% of the bloc’s exports facing tariffs between 20% and 25%. The EU exports about $585 billion worth of goods a year to the U.S., much more than the U.S. exports to the EU. This trade imbalance in goods is at the root of Trump’s animosity toward Europe.
Šefčovič said the EU would be careful and measured in its response to the U.S. The EU is expected to first decide how to hit back at tariffs Trump imposed last month on aluminum and steel and then move on to developing a strategy to counter the new sweeping tariffs.
Divisions have opened up in Europe about how to react. Ireland, Italy and Spain are among the countries warning against escalation while French President Emmanuel Macron has called for retaliatory tariffs and said European companies should freeze business relations with the U.S. until a deal is struck.
Besides huge losses caused by the tariffs, the EU is concerned about the risk that the U.S. tariffs will lead to low-cost Chinese products flooding its market and worsening the crisis.
Courthouse News reporter Cain Burdeau is based in the European Union.