Global stocks drop over US economic slowdown concerns

Asian stocks generally fell after a sell-off in U.S. equities, triggered by U.S. President Donald Trump not ruling out the possibility that his tariff policies could trigger a recession in the world's largest economy. This situation occurred after Trump, when asked about concerns over a potential recession, stated that the U.S. economy was in a "transition period."

Although President Trump has not commented directly on economic issues since making the above remarks, his senior officials and advisors have been working to allay investor concerns. Saxo Bank investment strategist Charu Chanana told the BBC that "the traditional view of Trump as a stock market president is being re-evaluated."

President Trump appeared to acknowledge concerns about the economy in a Fox News interview that aired on Sunday (recorded on Thursday). He said: "I don't like predicting these things. We're having a transition period because we're doing things that are so massive. We're bringing wealth back to the United States. And it's a big thing."

In early trading on Tuesday, Japan's Nikkei 225 index fell 1.7%, South Korea's Kospi index fell 1.5%, and Hong Kong's Hang Seng index fell 0.7%. On Monday in New York, the S&P 500 index, which tracks the largest U.S. companies, closed down 2.7%, and the Dow Jones Industrial Average fell 2%. The tech-heavy Nasdaq index was particularly hard hit, falling 4%. Tesla shares fell 15.4%, and artificial intelligence chip giant Nvidia fell more than 5%. Other major tech stocks, including Meta, Amazon, and Alphabet, also fell sharply.

Tim Waterer, chief market analyst at KCM Trade financial services, said: "President Trump's next move on tariffs leaves political leaders guessing, but the problem is that he is also leaving investors guessing, which is reflected in the poor market sentiment. While it may be too early to talk about a recession, the mere emergence of such a prospect is enough to send traders into a defensive mindset."

Following the close of trading on Monday, a White House official told reporters: "We see a huge disconnect between the 'animal spirits' in the stock market and what we're actually seeing from business and commercial leaders. The latter is clearly more meaningful for the medium-to-long-term future of the economy." White House spokesman Kush Desai said in a separate statement later that day that "industry leaders" had responded to Trump's agenda, including tariffs, by "making trillions of dollars in investment commitments."

Last week, major U.S. markets fell back to levels before Trump won the presidential election in November last year, when investors initially welcomed hopes of tax cuts and deregulation. Investors fear that Trump's tariffs – taxes on goods entering the U.S. – will lead to higher prices and weaken growth in the world's largest economy. Killik & Co investment manager Rachel Winter said on the Today program: "I think the level of tariffs that Trump is implementing will undoubtedly lead to inflation at some point."

President Trump took these measures after accusing China, Mexico, and Canada of not doing enough to stop the flow of illegal drugs and immigrants into the United States. All three countries have rejected these accusations. The decline in Tesla's stock price is related to the uncertainty of tariff plans that could harm Canada and Mexico, two major markets for auto parts. Higher tariffs could drive up production costs and raise prices.

Economist Mohamed El-Erian said investors were initially optimistic about Trump's plans to deregulate and cut taxes, while underestimating the likelihood of a trade war. He said the recent stock market decline (starting last week) reflects an adjustment to those bets. "This is a complete change in market expectations," he added, noting that investors are also reacting to signs that businesses and households are starting to postpone spending due to uncertainty, which could hurt economic growth.

But President Trump's economic advisor Kevin Hassett refuted those predicting such a bleak outlook. In an interview with CNBC, Hassett said there are many reasons to be optimistic about the U.S. economy, and that tariffs on Canada, Mexico, and China have brought manufacturing and jobs back to the United States. "There are many reasons to be extremely optimistic about the economic outlook," he said. He acknowledged some "minor problems" in the data for the current quarter, which he blamed on the timing of Trump's tariffs and "Biden's legacy."