Stocks have tumbled across the UK and Europe after US President Donald Trump’s weekend wave of tariffs and warnings that the European Union will be next.
European stock markets bore the brunt of the declines after Mr Trump said tariffs on goods from the EU will “definitely” happen.
The Cac 40 in France and Germany’s Dax both opened around 2% lower in Monday morning trading, before paring back falls to stand around 1.6% lower.
London’s FTSE 100 index fell sharply as Mr Trump claimed the UK is “out of line”, down 1.2% or 105.8 points down at 8568.2.
But the UK’s blue chip share index was shielded from the worst of the falls as the US president said he thinks a deal “can be worked out” with Britain.
It follows moves over the weekend to slap harsh 25% tariffs on Mexico and Canada and another 10% on China, with Canada quick to retaliate and the others also pledging to hit back with their own tariffs.
Asian markets suffered heavy falls overnight as they were the first to react, with Japan’s Nikkei slumping 2.7% and the Hang Seng in Hong Kong 1% lower, although mainland Chinese markets remain shut for the Chinese Lunar New Year holiday until Wednesday.
Carmakers are the biggest share casualties so far in Europe, with Volkswagen, Mercedes-Benz, BMW, Daimler Truck, Continental and Porsche dropping by around 5% in early trading across Europe.
Firms such as Volkswagen and Vauxhall owner Stellantis have operations in Mexico and are therefore exposed to the Mr Trump’s tariffs, while cars are also among the US president’s major gripes with the trade deficit that the US has with the EU.
Cars are among the biggest European exports to the US, alongside pharmaceuticals, and other machinery.
In the UK, luxury car firm Aston Martin was 4% lower.
The pound edged lower against a strengthened US dollar, down 0.6% at 1.23 US dollars, but rose 0.5% to 1.20 euros as the single currency came under pressure.
Neil Wilson, an analyst at TipRanks, said Mr Trump’s moves are “less of a negotiating tactic than a sledgehammer”.
He added: “It seems from the selling pressure that the market underestimated Trump – not for the first time.
“But whether this is resolved in short order or drags out and spirals is unknown.
“If the tariffs stay in place it would mean a significant redrawing of trade terms and currencies will need to adjust to reflect that.”
The FTSE 100 fell back from fresh record highs set on Friday, having notched up its strongest week for two years.
But the second tier FTSE 250 Index was harder hit on Monday, down 1.8%, given that it has less international constituents as the FTSE 100.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said investors are “rattled at the prospects of a full-blown trade war breaking out”.
She said: “Investors are buckling up for a rollercoaster ride for the global economy, with the European Union expected to be next in line for punitive duties.”
Kathleen Brooks, research director at XTB, added: “It’s too early to know exactly what impact tariffs will have on the global economy, but it is fair to say that they have a high potential of triggering inflation, and weighing heavily on global growth, including the US economy.”
