Global markets falter as Trump’s tariffs hit US growth, breed uncertainty among investors

Global financial markets stumbled Monday (June 2) as investors digested a fresh wave of economic uncertainty triggered by President Donald Trump’s announcement to double tariffs on steel and aluminum imports and renewed friction with China over trade commitments.

The Dow Jones Industrial Average slipped 1.2 per cent in early trading, while the S&P 500 fell 1.1 per cent and the Nasdaq lost 1.4 per cent. The dollar weakened against a basket of major currencies. Asian markets closed in the red, with Hong Kong’s Hang Seng dropping 2.1 per cent and Tokyo’s Nikkei losing 1.7 per cent. Shanghai markets remained closed for a public holiday.

In Europe, major indices opened lower, with the CAC 40 in Paris and the DAX in Frankfurt shedding nearly 1 per cent. The European Central Bank is widely expected to announce its seventh consecutive interest rate cut this Thursday in a bid to stimulate activity.

In the UK, the FTSE 100 was flat at mid-session. London recently finalised a trade agreement with Washington that may shield it from some of the tariff fallout.

Factors behind global market rout

Trump announced via Truth Social late Sunday (June 1) that import duties on steel and aluminum would rise to 50 per cent starting Wednesday (June 3), accusing Beijing of backtracking on a recent agreement to ease tariffs.

The move comes weeks after Washington and Beijing reached a 90-day truce in Geneva to unwind aggressive tit-for-tat levies that had battered global supply chains. That détente now appears to be unraveling.

China “firmly rejected” US accusations of non-compliance, setting the stage for another round of trade hostilities between the world’s two largest economies.

“Trump’s pledge to double steel and aluminium import tariffs have caused fresh uncertainty,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. “Negotiations between the US and China also appear to be in disarray after China.”

Commerce Secretary Howard Lutnick told Fox News that Beijing was “slow-rolling” its commitments under the truce. Chinese officials have not confirmed if retaliatory measures are forthcoming, though tensions are clearly escalating.

Adding to investor jitters, oil prices surged after OPEC and its partners announced over the weekend that production would increase in July, but by less than markets had anticipated. Brent crude rose 3.6 per cent to $88.40 a barrel, while West Texas Intermediate gained 3.2 per cent to trade above $84.

Meanwhile, geopolitical risks flared after Ukrainian drones reportedly struck air bases deep inside Russia, one of the world’s largest crude producers. The attacks raised fears of an escalation in the three-year-old conflict and potential supply disruptions.

The combination of trade uncertainty, inflationary pressure from tariffs, and geopolitical instability has clouded the outlook for global growth.

Kai Wang, Asia equity market strategist at Morningstar, warned that markets risked “greater volatility given the heightened uncertainty with regard to global growth”.

Economic consequences mount for US

Beyond the markets, early data suggest Trump’s tariff policies are already weighing on the US economy. First-quarter GDP contracted by 0.3 per cent, and economists project a 0.7 per cent annual decline if trade tensions persist. The job market is also feeling the squeeze, with estimates indicating a loss of 456,000 jobs by year-end.

Consumer prices have risen 1.7 per cent to 2.4 per cent due to tariff-related costs, with apparel and footwear prices jumping as much as 17 per cent. While some sectors, particularly domestic manufacturing, have posted gains, those have been offset by contractions in construction and agriculture.

With inputs from agencies