Trump's tariff 'medicine' hammers markets as Europe gropes for response

Tokyo. U.S. President Donald Trump's sweeping tariff plans hammered global financial markets on Monday 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 Trump announced last week could lead to higher prices, weaker demand and potentially a global recession.

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

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, are meeting on Monday as they seek to form a united front.

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.

Speaking to reporters aboard Air Force One on Sunday, Trump indicated he was not concerned about losses that have wiped out trillions of dollars in value 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.

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.

"They want to talk but there's no talk unless they pay us a lot of money on a yearly basis," Trump said.

His tariff announcement has met with bewildered condemnation from other leaders and triggered retaliatory levies from China, the world's No.2 economy.

Shares in Taiwan plummeted almost 10% - the biggest one-day percentage fall on record - and stock futures pointed to another brutal day for markets in the U.S.

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.

Billionaire fund manager Bill Ackman, who endorsed Trump's run for president, called for the tariffs to be paused to avert an "economic nuclear winter". "The president is losing the confidence of business leaders around the globe," he added.

Tactics? 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.

"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."

On Sunday talk shows, Trump's top economic advisers sought to portray the tariffs as a savvy repositioning of the U.S. in the global trade order.

Treasury Secretary Scott Bessent said more than 50 nations had started negotiations with the U.S. since last Wednesday's announcement. Commerce Secretary Howard Lutnick said the tariffs would remain in place "for days and weeks."

Prime Minister Shigeru Ishiba of Japan, one of Washington's closest allies in Asia, is also trying to cut a deal with Trump but told parliament on Monday that it may take time.

Investors, however, are not hanging around.

Tokyo's Nikkei (.N225), opens new tab plunged to a 1-1/2-year low on Monday, led by the country's banks, which have shed almost a quarter of their market value in three trading days.

Even gold, usually a safe haven amid market stress, was caught up as investors dumped it to cover losses elsewhere.

Investors are now betting that the growing risk of recession could see the U.S. Federal Reserve cut rates as early as next month. Fed chief Jerome Powell has so far indicated he is in no rush to take action.

Uncertainty has clouded the outlook for other global policymakers. The Reserve Bank of New Zealand, the first major central bank to meet since Trump's tariff bombshell, is due to cut rates on Tuesday in what economists say could be the first of several this year.

Tariff dealmaking

Some governments have already signalled a willingness to engage with the U.S. to avoid the duties.

Taiwan's President Lai Ching-te on Sunday offered zero tariffs as the basis for talks, pledging to remove trade barriers and saying Taiwanese companies will raise their U.S. investments.

An Indian government official said the country does not plan to retaliate against a 26% tariff and talks were under way with the U.S. over a possible deal.

Vietnamese leader To Lam agreed in a phone call with Trump on Friday to discuss a deal. Trump called that discussion "very productive".