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 is 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.
He went on to say, “It is a complete change in what the market expected,” adding that investors are reacting to indications that individuals and businesses are beginning to postpone spending in the face of uncertainty, which could impede economic development.
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 over 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 are undertaking, 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 added.
The US president has accused China, Mexico and Canada of not doing enough to end the flow of illegal drugs and migrants into the US. The three countries have rejected the accusations.
He imposed new 25% tariffs on imports from Mexico and Canada last week, but then exempted many of those goods just two days later.
Trump also doubled a blanket tariff on goods from China to 20%.
The US is now facing retaliation, including new tit-for-tat tariffs from China targeting US farm products that came into effect on Monday.
They mean US exports including chicken, beef, pork, wheat, and soybeans face new tariffs of 10% to 15%.
Ontario premier Doug Ford, who leads Canada’s most populous province, also said he was going forward with a 25% surcharge on energy exports to the US, announced in retaliation for the tariffs.
If Trump escalates, “I will not hesitate to shut the electricity off completely,” he warned.