Asian stock markets have fallen dramatically amid escalating fears of a global trade war – as Donald Trump called his tariffs “medicine” and showed no sign of backing down.
Hong Kong’s Hang Seng index of shares closed down 13.2% – its biggest one-day drop since 1997, while the Shanghai composite index lost 7.3% – the worst fall there since 2020.
Elsewhere, Japan’s Nikkei 225 lost 7.8%, while London’s FTSE 100 was down 4.85% by 9am.
US stock market futures signalled further losses were ahead when trading begins in America later.
At 4am EST, the S&P 500 futures was down 4.93%, the Dow Jones 4.32% and the Nasdaq 5.33%.
Markets are reacting to ongoing uncertainty over the impact of President Trump’s tariff regime on goods imported to the US, which he announced last week.
Image: A screen showing the Hang Seng index in central Hong Kong. Pic: Reuters
Speaking on Air Force One on Sunday, Mr Trump said foreign governments would have to pay “a lot of money” to lift his tariffs.
“I don’t want anything to go down. But sometimes you have to take medicine to fix something,” he said.
The US president said world leaders were trying to convince him to lower further tariffs, which are due to come into effect this week.
“I spoke to a lot of leaders, European, Asian, from all over the world,” Mr Trump told reporters.
“They’re dying to make a deal. And I said, we’re not going to have deficits with your country.
“We’re not going to do that because to me, a deficit is a loss. We’re going to have surpluses or, at worst, going to be breaking even.”
Mr Trump, who spent much of the weekend playing golf in Florida, posted on his Truth Social platform: “WE WILL WIN. HANG TOUGH, it won’t be easy.”
Reality hits that trade war no longer just a threat
China’s announcement of its tariff retaliation came late afternoon on Friday local time.
Most Asian markets closed shortly after – and markets in China, Hong Kong and Taiwan were closed for a public holiday – meaning the scale of the hit did not play out until today.
This morning we are getting a sense of the impact. Dramatic falls across all Asian markets clearly signal a realisation a global trade war is no longer just a threat, but a reality here to stay, and a global recession could yet follow.
Up until Friday, China’s response to Donald Trump’s tariffs had been perceived as restrained and designed to avoid escalation, the markets had reacted accordingly.
But that all changed last week when Mr Trump’s new 34% levy on all Chinese goods was matched by China with an identical tax. Both sit on top of previous tariffs levied, meaning many goods now face rates in excess of 50%.
These are numbers that make most trade between the world’s two biggest economies almost impossible and that will have a global impact.
China has clearly decided any forthcoming pain will have to be managed, and not being seen to be cowed and bullied by Mr Trump is being deemed more important.
But the scale of the retaliation will have further spooked the markets as it makes the prospect of negotiation and retreat increasingly unlikely.
Mr Trump added to the atmosphere of intransigence when he told the media on Sunday the trade deficit with China would need to be addressed before any deal could be done. The complete lack of concern from the White House over the weekend will also not have helped.
While smaller economies like Japan, South Korea, Cambodia and Vietnam are all lining up to attempt to negotiate, there are a lot of nations in that queue.
There is a sense none of this will be easily rectified.
On Saturday, US customs agents began collecting Mr Trump’s baseline 10% tariff.
Higher “reciprocal” tariffs of between 11% and 50% – depending on the country – are due to come into effect on Wednesday.
President Trump believes his policy will ultimately make the US richer, creating jobs and forcing companies to relocate more of their manufacturing to America.
However, his announcement has jolted economies around the world, triggered retaliatory levies from China and sparked fears of a global trade war.
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1:04
Trump’s tariffs: What you need to know
Investors and world leaders are unsure whether the US tariffs are here to stay or a negotiating tactic to win concessions from other countries.
Richard Flax, chief investment officer at Moneyfarm, said: “I guess there was some hope over the weekend that maybe we would see this as part of the start of a negotiation.
“But the messages that we’ve so far seen suggest that the President Trump is comfortable with the market reaction and that he’s going to continue on this course.
Goldman Sachs has raised the odds of a US recession to 45%, joining other investment banks that have also revised forecasts.
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In the UK, Sir Keir Starmer has promised “bold changes” and said he would relax rules around electric vehicles as British carmakers deal with a new 25% US tariff on vehicles.
The prime minister said “global trade is being transformed” by President Trump’s actions.
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2:53
‘Nothing off the table’ over tariffs
Meanwhile, KPMG warned tariffs on UK exports could see GDP growth fall to 0.8% in 2025 and 2026.
The accountancy firm said higher tariffs on specific categories, such as cars, aluminium and steel, would more than offset the exemption on pharmaceutical exports, leaving the effective tariff rate on UK exports around 12%.
Yael Selfin, chief economist at KPMG UK, said: “Given the economic impact that tariffs would cause, there is a strong incentive to seek a negotiated settlement that diminishes the need for tariffs.
“The UK automotive manufacturing sector is particularly exposed given the complex supply chains of some producers.”
Donald Trump and a leading figure in the Israeli army have suggested a ceasefire in Gaza could be close.
Eyal Zamir, chief of staff of the Israel Defence Forces (IDF), told Israeli media that “conditions were created to advance a deal” to bring about an end to the conflict in the coastal territory, and the release of hostages.
In a televised address, he said: “We have achieved many significant results, we have caused great damage to the governance and military capabilities of Hamas.
“Thanks to the operational power that we have demonstrated, the conditions have been created to advance a deal to release the hostages.”
‘This week, or next’
It comes as the US president hosts Israeli Prime Minister Benjamin Netanyahu in Washington DC on a prolonged visit this week.
Mr Trump said his meetings with Mr Netanyahu were focused “on Gaza for the most part”.
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He said: “I think we have a chance [of a ceasefire] this week, or next week.”
However, the US leader added: “Not definitely,” saying nothing was certain about the situation in Gaza.
Image: Donald Trump speaks, as Pete Hegseth looks on, during a dinner with Israeli Prime Minister Benjamin Netanyahu.
Pic: Reuters
Image: Benjamin Netanyahu speaks during a bilateral dinner with Donald Trump this week.
Pic: Reuters
Hamas reiterates ‘keenness’ to end fighting
Meanwhile, Hamas has repeated its message that it is committed to the negotiations but warned of a number of sticking points despite the positive noises from senior Israeli figures.
In a statement, the militant group said: “In its keenness to succeed in the ongoing efforts, the movement [Hamas] has shown the necessary flexibility and agreed to release 10 prisoners.
“The key points remain under negotiation, foremost among them: the flow of aid, the withdrawal of the occupation from the territories of the Gaza Strip, and the provision of real guarantees for a permanent ceasefire.”
Mr Trump’s special envoy to the Middle East Steve Witkoff previously told a cabinet meeting that the anticipated ceasefire would last 60 days and involve the release of ten hostages and nine bodies.
A source close to the negotiations told Sky News that the hostage release would take place in two waves during the 60 days and was conditional on the ceasefire.
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While the politicians talk, so many people come from around the world to try to get across the Channel on small boats. But why?
Why make such a perilous crossing to try to get to a country that seems to be getting increasingly hostile to asylum seekers?
As the British and French leaders meet, with small boats at the forefront of their agenda, we came to northern France to get some answers.
It is not a new question, but it is peppered with fresh relevance.
Over the course of a morning spent around a migrant camp in Dunkirk, we meet migrantsfrom Gaza, Iraq, Eritrea, South Sudan, Sri Lanka and beyond.
Some are fearful, waving us away; some are happy to talk. Very few are comfortable to be filmed.
All but one man – who says he’s come to the wrong place and actually wants to claim asylum in Paris – are intent on reaching Britain.
They see the calm seas, feel the light winds – perfect conditions for small boat crossings.
John has come here from South Sudan. He tells me he’s now 18 years old. He left his war-torn home nation just before his 16th birthday. He feels that reaching Britain is his destiny.
“England is my dream country,” he says. “It has been my dream since I was at school. It’s the country that colonised us and when I get there, I will feel like I am home.
“In England, they can give me an opportunity to succeed or to do whatever I need to do in my life. I feel like I am an English child, who was born in Africa.”
Image: ‘England is my dream country,’ John tells Adam Parsons
He says he would like to make a career in England, either as a journalist or in human resources, and, like many others we meet, is at pains to insist he will work hard.
The boat crossing is waved away as little more than an inconvenience – a trifle compared with the previous hardships of his journey towards Britain.
We meet a group of men who have all travelled from Gaza, intent on starting new lives in Britain and then bringing their families over to join them.
One man, who left Gaza two years ago, tells me that his son has since been shot in the leg “but there is no hospital for him to go to”.
Next to him, a man called Abdullah says he entered Europe through Greece and stayed there for months on end, but was told the Greek authorities would never allow him to bring over his family.
Britain, he thinks, will be more accommodating. “Gaza is being destroyed – we need help,” he says.
Image: Abdullah says ‘Gaza is being destroyed – we need help’
A man from Eritreatells us he is escaping a failing country and has friends in Britain – he plans to become a bicycle courier in either London or Manchester.
He can’t stay in France, he says, because he doesn’t speak French. The English language is presented as a huge draw for many of the people we talk to, just as it had been during similar conversations over the course of many years.
I ask many of these people why they don’t want to stay in France, or another safe European country.
Some repeat that they cannot speak the language and feel ostracised. Another says that he tried, and failed, to get a residency permit in both France and Belgium.
But this is also, clearly, a flawed survey. Last year, five times as many people sought asylum in France as in Britain.
And French critics have long insisted that Britain, a country without a European-style ID card system, makes itself attractive to migrants who can “disappear”.
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1:48
Migrant Channel crossings hit new record
A young man from Iraq, with absolutely perfect English, comes for a chat. He oozes confidence and a certain amount of mischief.
It has taken him only seven days to get from Iraq to Dunkirk; when I ask how he has made the trip so quickly, he shrugs. “Money talks”.
He looks around him. “Let me tell you – all of these people you see around you will be getting to Britain and the first job they get will be in the black market, so they won’t be paying any tax.
“Back in the day in Britain, they used to welcome immigrants very well, but these days I don’t think they want to, because there’s too many of them coming by boat. Every day it’s about seven or 800 people. That’s too many people.”
“But,” I ask, “if those people are a problem – then what makes you different? Aren’t you a problem too?”
He shakes his head emphatically. “I know that I’m a very good guy. And I won’t be a problem. I’ll only stay in Britain for a few years and then I’ll leave again.”
A man from Sri Lanka says he “will feel safe” when he gets to Britain; a tall, smiling man from Ethiopia echoes the sentiment: “We are not safe in our home country so we have come all this way,” he says. “We want to work, to be part of Britain.”
Emmanuel is another from South Sudan – thoughtful and eloquent. He left his country five years ago – “at the start of COVID” – and has not seen his children in all that time. His aim is to start a new life in Britain, and then to bring his family to join him.
He is a trained electrical engineer, but says he could also work as a lorry driver. He is adamant that Britain has a responsibility to the people of its former colony.
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Only one issue remains unresolved in the push to achieve a ceasefire in Gaza, according to Sky sources.
Intense negotiations are taking place in Qatar in parallel with key talks in Washington between US President Donald Trump and Israeli Prime Minister Benjamin Netanyahu.
Two sources with direct knowledge of the negotiations have told Sky News that disagreement between Israel and Hamas remains on the status and presence of the Israel Defence Forces (IDF) inside Gaza.
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2:10
Gaza ceasefire deal in progress
The two sides have bridged significant differences on several other issues, including the process of delivering humanitarian aid and Hamas’s demand that the US guarantees to ensure Israel doesn’t unilaterally resume the war when the ceasefire expires in 60 days.
On the issue of humanitarian aid, Sky News understands that a third party that neither Hamas nor Israel has control over will be used in areas from which the IDF withdraws.
Image: Benjamin Netanyahu briefed reporters on Capitol Hill about the talks on Tuesday. Pic: AP
This means that the controversial Gaza Humanitarian Foundation (GHF) – jointly run by an American organisation and Israel – will not be able to operate anywhere where the IDF is not deployed. It will limit GHF expansion plans.
It is believed the United Nations or other recognised humanitarian organisations will adopt a greater role.
On the issue of a US guarantee to prevent Israel restarting the war, Sky News understands that a message was passed to Hamas by Dr Bishara Bahbah, a Palestinian American who has emerged as a key back channel in the negotiations.
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The message appears to have been enough to convince Hamas that President Trump will prevent Israel from restarting the conflict.
However, there is no sense from any of the developments over the course of the past day about what the future of Gaza looks like longer-term.
Final challenge is huge
The last remaining disagreement is, predictably, the trickiest to bridge.
Israel’s central war aim, beyond the return of the hostages, is the total elimination of Hamas as a military and political organisation. The withdrawal of the IDF, partial or total, could allow Hamas to regroup.
One way to overcome this would be to provide wider guarantees of clear deliverable pathways to a viable future for Palestinians.
But there is no sense from the negotiations of any longer-term commitments on this issue.
Two key blocks have been resolved over the past 24 hours but the final challenge is huge.
The conflict in Gaza erupted when Hamas attacked southern Israel in October 2023, killing around 1,200 people and taking 251 hostages, according to Israeli figures. Some 20 hostages are believed to remain alive in Gaza.
Israel has killed more than 57,000 Palestinians, according to Gaza’s Hamas-run health ministry, which does not distinguish between combatants and civilians.