Growing anxiety over the trade war’s impact on the largest economy in the world fueled a sell-off in the US stock market on Monday.
The Dow Jones plummeted 0.9% and the Nasdaq plunged more than 3.5% in early trading, while the S&P 500, which measures the largest American corporations, slid around 2%.
The declines followed President Donald Trump’s warning of a “period of transition” in response to inquiries about whether the US economy was experiencing a recession or price increases as a result of tariff actions.
However, despite acknowledging that the price of some commodities may increase, Commerce Secretary Howard Lutnick asserted that there would be no contraction in the United States.
Investors worry that tariffs, which are levied as goods enter the nation, will raise prices and eventually impede the expansion of the biggest economy in the world.
Rachel Winter, investment manager at Killik & Co., told the Today show that “I think there’s no doubt that the amount of tariffs that Trump is imposing will have to cause inflation somewhere down the line.”
According to economist Mohamed El-Erian, investors had underestimated the possibility of a trade war while being hopeful about Trump’s proposals for deregulation and tax cuts.
He claimed that the recent stock market declines, which began last week, are a reflection of those bets’ adjustment.
The market’s expectations have completely changed,” he continued, adding that investors are reacting to indications that individuals and businesses are beginning to postpone purchases in the face of uncertainty, which could impede economic expansion.
Monday saw a decline in European stock prices, with the London FTSE and France’s CAC indices both closing about 0.9% lower. The DAX in Germany ended the day 1.75% lower.
“Unease around the impact of Trump tariffs” is the reason, according to Susannah Streeter, head of money and markets at stockbrokers Hargreaves Lansdown. She went on to say that investors are concerned about the US economy going into a recession.
On Monday, tech firms Nvidia and Meta both saw declines of over 4%, while Tesla’s stock dropped almost 8%.
When asked if the US was in a recession, Trump seemed to accept the worries in an interview with Fox News that was taped on Thursday but aired on Sunday: “I detest making such predictions. Because of the size of what we’re doing, there is a transitional phase. We are returning riches to the United States. That is a significant event.
“It takes a little time, but I think it should be great for us,” he stated.
The US president has charged that Canada, Mexico, and China are not doing enough to stop the influx of migrants and illegal drugs into the US. The charges have been denied by all three nations.
Two days after enacting new 25% tariffs on Canadian and Mexican imports last week, he exempted a large number of those items.
Additionally, Trump hiked a general duty on Chinese goods to 20%.
China has now retaliated against the US with new tit-for-tat tariffs that target US farm products and went into force on Monday.
As a result, new 10%–15% tariffs will be applied to US exports of soybeans, wheat, cattle, pig, and chicken.
In response to the tariffs, Ontario Premier Doug Ford, who is in control of Canada’s most populous province, also declared that he would proceed with a 25% levy on energy exports to the United States.
“I will not hesitate to shut the electricity off completely,” he threatened if Trump escalated.
Commerce Secretary Howard Lutnick admitted that “foreign goods may get a little more expensive” during his Sunday appearance on NBC.
“But American goods are going to get cheaper,” he stated.
However, he responded, “Absolutely not,” when asked if the US economy might experience a recession. America will not experience a recession.
Frank Lavin, a former official at the US Commerce Department, told the BBC that he does not believe the trade war will get out of hand.
Even while they will “fade a bit” over time, tariffs will still be a “extra burden on the US economy,” he said.
“You’re seeing a lot of tit for tat between both sides to demonstrate that neither side will back off easily,” said Han Shen Lin, China country director at consulting firm The Asia Group, in an interview with the BBC’s Today program.
“That said China has realised it probably can’t export its way to GDP growth in the way that it used to so it is focusing a lot more on the domestic economy right now.”
