Financial markets in Asia faced another wave of sell-offs on Monday: investors and economists are facing the growing likelihood of a serious economic downturn caused by new significant import tariffs imposed by President Trump.
As Reuters writes, the Tokyo Stock Exchange index, Nikkei 225, fell by 8.5% in the first half-hour of trading, the Australian Stock Exchange index, S&P/ASX 200, showed an average drop in securities of about 6.4% in the first minutes of trading, and the Korean stock market index KOSPI fell by more than 5% from the start of trading.
On Friday, China imposed 34% tariffs on a range of American export goods in response to tariffs imposed by Trump. Over the weekend, analysts released reports warning that Asia could be particularly vulnerable due to the retaliatory exchange of tariffs between China and the United States. Many countries in the region, including Japan and South Korea, consider both countries as their main trading partners.
On Sunday evening, President Trump fueled the situation with his statements, saying he would not ease tariffs on other countries «unless they pay us a lot of money». He also dismissed concerns that his new tough import taxes would lead to price increases. «I don't think inflation will be a big problem», he told reporters aboard Air Force One.
On Monday, stock markets in Hong Kong and Taiwan fell by about 10% after the start of trading, mainland Chinese stocks fell by about half, writes The New York Times.
Shares of the world's largest chip manufacturer Taiwan Semiconductor Manufacturing Company fell by almost 10 percent, and shares of Apple's main contract manufacturer Foxconn fell by the same amount. In Hong Kong, Chinese tech giants Alibaba, Tencent, and Xiaomi fell.
South Korean company Samsung Electronics, which produces most of its products in Vietnam, fell by 4%. Japanese company Nintendo, which postponed pre-orders for the sequel to its bestseller Switch, fell by almost 5% (at the time of opening, the company's shares fell by 10%).
Financiers continue to count the consequences of Trump's trade war. The S&P 500 index is now 17.4 percent below its peak reached in February. The Nasdaq Composite index, full of tech stocks that came under pressure as a result of accelerated sell-offs last week, fell by almost 23% from its December peak. The Russell 2000 index, which includes smaller companies that are more sensitive to economic development prospects, fell by more than 25% from its November peak. The price of copper, considered a broad economic indicator, fell by more than 5%.
According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, this drop is comparable to the financial crisis of 2008 and the stock market crash of 1987. In dollar terms, more than 5 trillion dollars, which were wiped out in the value of S&P over two days last week, are unprecedented in history.
As NYT writes, bank economists have increased the likelihood of forecasts of a recession in the US in the next 12 months. When countries began responding with their tariffs last week, the sell-off on financial markets accelerated.
JPMorgan Chase CEO James Dimon warned in his annual letter to shareholders and investors that a global trade war could slow the growth of the world's largest economy, spur inflation, and potentially lead to long-term negative consequences.
«We are likely to see inflationary results... Whether the introduction of tariffs will cause a recession remains in question, but growth will be slowed», wrote Dimon, adding that some of the negative effects «will build up over time and will be difficult to reverse».
JPMorgan economists raised the risk of a recession in the US and the world this year from 40 to 60%.
«We are entering this time of uncertainty with high stock and debt prices, even after the recent decline... it seems that markets are still pricing assets assuming we are in for a fairly soft landing. I'm not sure about that», wrote Dimon.
Hedge fund manager Bill Ackman, who supported Trump, stated on Sunday on social media X that he urges the president to declare a «90-day time-out» on Monday. «Otherwise, we are moving towards an economic nuclear winter caused by us, and we should start hunkering down», said Ackman.
In conversations with The New York Times over the weekend, bankers, executives, and traders compared the situation to 2008, which wiped out a number of Wall Street giants. Ignoring the brutal but relatively short-lived market panic that erupted at the beginning of the coronavirus pandemic, the speed of the market decline last week is surpassed only by the wave of sell-offs that occurred after the collapse of Lehman Brothers in 2008.
The uniqueness of this crisis lies in the fact that instead of relying on government help to pick up the pieces, the financial sector must now independently emerge from the artificially created crisis.
Photo: The New York Times