Asian markets attempted a tentative recovery on Tuesday following a brutal sell-off the previous day, triggered by escalating US-China trade tensions. However, investor sentiment remained fragile as former US President Donald Trump threatened to impose additional tariffs on Chinese goods, while Beijing vowed to “fight to the end” in what is shaping up to be a deepening trade war.
Global equities have been under pressure since Trump announced sweeping new tariffs on allies and rivals alike, upending established trade norms, stoking fears of a global recession, and wiping trillions off global market valuations.
Markets across Asia clawed back some losses as investors weighed the possibility that Washington could scale back its hardline stance. Tokyo’s Nikkei 225 surged over 6%—recouping much of Monday’s losses—after Japanese Prime Minister Shigeru Ishiba held talks with Trump.
However, the recovery was tempered by Trump’s latest warning: a proposed 50% tariff hike if China proceeds with its announced 34% retaliatory duties. “If China doesn’t back down, we will raise the tariffs again,” Trump said, escalating concerns of a prolonged standoff between the world’s two largest economies.
China responded defiantly, labelling Washington’s moves as “a mistake on top of a mistake.” A spokesperson for the Ministry of Commerce reiterated, “If the US insists on going its own way, China will fight it to the end.”
Despite the uncertainty, bargain hunters emerged. Trump urged Americans to “be strong, courageous, and patient,” as markets tried to stabilize.
Mixed Market Reactions
In Tokyo, shares of Nippon Steel soared 11% following news that Trump had launched a review of its proposed acquisition of US Steel—an offer previously blocked by President Joe Biden.
Hong Kong’s Hang Seng Index climbed 2.2%, though it remained far below Monday’s steep 13% loss—the largest daily drop since the 1997 handover. Other regional markets, including Sydney, Seoul, Wellington, and Manila, also posted gains.
Shanghai’s Composite Index edged 0.4% higher after China’s central bank reaffirmed support for major state-backed institutions, pledging assistance for Central Huijin Investment to help stabilize capital markets.
On Wall Street, the S&P 500 and Dow Jones Industrial Average ended Monday lower but recovered from deeper losses, while the Nasdaq closed slightly higher. Oil markets saw a modest rebound, with West Texas Intermediate rising 1.4% to $61.54 per barrel, and Brent crude up 1.1% at $64.92.
Elsewhere, the sell-off continued. Taipei extended losses, dropping over 4% after Monday’s historic 9.7% plunge. Singapore also saw continued declines. In Jakarta, trading was halted shortly after the open as the index plunged more than 9% amid a backlog of sell orders following a public holiday. Vietnam’s market, weighed down by a 46% US tariff, dropped 5%.
Outlook Darkens
Analysts warned the outlook could deteriorate further. “If the current tariffs remain and no deal is struck in the coming weeks, the global economy risks entering a crisis akin to the oil price shock of the 1970s,” said Vincenzo Vedda, Global CIO at DWS.
Chris Weston of Pepperstone added, “Markets largely believe China won’t yield on its 34% tariff response. That means the risk of Trump following through with an additional 50% tariff is very high.”
JPMorgan Chase CEO Jamie Dimon echoed concerns, warning that while a recession is not yet certain, growth is likely to slow, and inflation may rise as a result of the tariffs.
The Federal Reserve is now under renewed scrutiny, with economists debating whether to cut interest rates to support growth or hold firm to curb inflation. “With tariffs higher than anticipated, the Fed may be forced to implement more rate cuts this year,” said Saira Malik, CIO at Nuveen. “Our projections now suggest up to 6.6 rate cuts between 2025 and 2026.”
Key Market Data (as of 02:40 GMT):
• Tokyo (Nikkei 225): UP 6.1% at 33,030.66
• Hong Kong (Hang Seng): UP 2.2% at 20,245.43
• Shanghai (Composite): UP 0.4% at 3,107.75
• Euro/Dollar: UP at $1.0967 from $1.0904
• Pound/Dollar: UP at $1.2785 from $1.2723
• Dollar/Yen: DOWN at ¥147.36 from ¥147.83
• Euro/Pound: UP at 85.79p from 85.68p
• WTI Crude: UP 1.4% at $61.54/barrel
• Brent Crude: UP 1.1% at $64.92/barrel
• New York (Dow): DOWN 0.9% at 37,965.60 (close)
• London (FTSE 100): DOWN 4.4% at 7,702.08 (close)