Trump’s tariff ‘medicine’ engulfs markets as US stocks are braced for more turmoil

ABOARD AIR FORCE ONE/TOKYO/BERLIN - US President Donald Trump’s

sweeping tariff

plans hammered global financial markets and US stocks were braced for more turmoil on April 7, after he warned foreign governments they would have to pay “a lot of money” to lift the levies that he called medicine.

Asian equity markets sank, European shares crashed to a 16-month low and oil prices plummeted as investors feared the duties Mr Trump announced last week could lead to higher prices, weaker demand and potentially a global recession.

Ministers in the European Union, which has been divided on how strongly to punch back against Mr Trump without risking more pain for their own companies and consumers, are meeting on April 7 as they seek to form a united front.

Goldman Sachs raised the odds of a US recession to 45 per cent in the next 12 months, joining other investment banks in revising their forecast. JPMorgan economists now estimate the tariffs pushing the US economy into a 0.3 per cent contraction, down from an earlier estimate of 1.3 per cent growth of gross domestic product.

“People are afraid the worst is yet to come. They’re worried about a market crash,” said Mr 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 US markets braced for another battering, Mr Trump showed no sign of relaxing his tariff policy on April 7, blasting China for hitting back with retaliatory tariffs and repeating a call for the US Federal Reserve to cut interest rates.

Speaking to reporters earlier aboard Air Force One on April 6, Mr 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.

Mr 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 per cent due to take effect this week.

“They want to talk, but there’s no talk unless they pay us a lot of money on a yearly basis,” Mr Trump said.

US stock index futures slumped on April 7 and the S&P 500 was poised to confirm a bear market as investors barrelled into government bonds.

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 Mr Trump’s behaviour “economic bullying”.

After stocks in mainland China and Hong Kong cratered on April 7, China’s sovereign fund stepped in to try to stabilise the market.

Shares in Taiwan plummeted almost 10 per cent – the biggest one-day percentage fall on record.

European defence shares, previously hot performers thanks to expectations of a spending boom by nation states, were on course for their biggest one-day decline since April 2020.

Wall Street leaders issued warnings on US 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”.

Mr Elon Musk, the world’s richest man and a close ally to Mr Trump in a crusade to cut government spending, on April 5 said he hoped to see zero tariffs between the US and Europe. On April 7, 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 Mr Trump’s tariffs are part of a permanent new regime or a negotiating tactic to win concessions from other countries.

“The imposition of tariffs by the United States on European goods and services is an attack on the free trade that has ensured prosperity around the world,” Danish Foreign and Trade Minister Lars Lokke Rasmussen said ahead of the EU meeting.

“From the European side, we cannot just roll over.”

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 the market turmoil underscored the need for his country to regain competitiveness, calling for tax cuts and lower energy prices.

In a sign of companies in Germany and elsewhere grappling with the fallout, Volkswagen’s Audi is holding back cars that arrived in US ports after April 2 because of the newly imposed 25 per cent autos tariff.

Prime Minister Shigeru Ishiba of Japan, one of Washington’s closest allies in Asia, is also trying to cut a deal with Mr Trump but warned that it may take time.

Investors are now betting the growing risk of recession could see the US Federal Reserve cut rates as early as May. Fed chief Jerome Powell has so far indicated he is in no rush, though.

Some governments in Asia have already signalled a willingness to engage with the US to avoid the duties.

Taiwan’s President Lai Ching-te on April 6 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 April 4 to discuss a deal.

In Europe, Dutch Trade Minister Reinette Klever said on April 7 that getting talks going 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. REUTERS