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.”
Two Cambodian soldiers have been returned by Thailand ahead of a key meeting aimed at maintaining a ceasefire between the countries.
In Bangkok, Thai government spokesperson Jirayu Houngsub said on Friday that two Cambodian soldiers had been sent back, and the remaining 18 were being processed for violating immigration law.
“The Cambodian soldiers intruded on Thai territory and the army took them into custody, treating them based on humanitarian principles,” he said.
In a statement, the Cambodian defence ministry asked Thailandto return all the detained soldiers.
“Cambodiais actively engaging in negotiations to secure their release, and reiterates its firm call for their immediate and unconditional release in accordance with the international humanitarian law,” a ministry spokesperson said.
It follows days of deadly fighting along the Thai-Cambodian border which saw at least 43 people killed and left over 300,000 people displaced.
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1:50
July: Sky at scene of deadly rocket attack
The violence – the worst fighting between the neighbours in over a decade – ended with a truce reached on Monday following a push from Malaysia and calls from US President Donald Trump who threatened to hold off tariff negotiations with both countries until fighting ceased.
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Thailand and Cambodia previously faced tariffs of 36% for sending goods to the US, their largest export markets.
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Officials from both Thailand and Cambodia will be meeting in Malaysia next week for talks aimed at maintaining the ceasefire along the disputed border.
The two nations have been at loggerheads over border areas for decades, and simmering tensions escalated into an exchange of gunfire, shelling and rockets on last week, with both sides accusing one another of initiating the violence.
Both countries recalled their ambassadors, and Thailand closed its border crossings with Cambodia.
Relations between the pair deteriorated sharply after an armed confrontation in May that killed a Cambodian soldier. Nationalist passions on both sides have further inflamed the situation.
Two senior US officials will visit Gaza later today, amid growing concerns about the scale of the humanitarian crisis.
Donald Trump’s special envoy Steve Witkoff and US ambassador to Israel Mike Huckabee will inspect a food distribution site – and report back to the president immediately.
Our US correspondent David Blevins says the visit “is not unprecedented but is highly unusual … due to obvious security concerns and political sensitivities”.
He added: “I think it reflects the growing concern there is here in the United States about the scale of the humanitarian catastrophe.”
Image: Steve Witkoff met Benjamin Netanyahu in Jerusalem on Thursday. Pic: US embassy in Jerusalem
Aid workers on the ground have warned that a “politically manmade famine” is taking place in the territory.
Philippe Lazzarini, the head of the UN Relief and Works Agency for Palestinian Refugees, told The World With Yalda Hakim that “more and more people will continue to die” unless there is urgent change.
Donald Trumphas expressed frustration at the lack of aid reaching Palestinians and has repeatedly blamed Hamas– but US government analysis has found no evidence that the militant group is systemically stealing supplies.
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He told reporters yesterday: “It’s terrible what’s occurring there. People are very hungry, you know.
“The United States gave $60m … for food. And, it’s a shame because … I don’t see the results of it. Part of the problem is Hamas is taking the money and they’re taking the food.”
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8:07
Kids are ‘dying silently of hunger’
On Thursday, Mr Witkoff arrived in Israel and held discussions with Prime Minister Benjamin Netanyahu– the first meeting between the pair since both Israel and the US withdrew their negotiating teams from Qatar a week ago.
At the time, he claimed that Hamas “shows a lack of desire” to reach a truce.
Under heavy international pressure, Israel has paused fighting in parts of Gaza and airdropped food – although the volume of supplies remains far lower than what aid organisations say is needed.
Image: Palestinians rush to collect humanitarian aid airdropped in central Gaza. Pic: AP
While more aid trucks have entered Gaza, nearly all the lorries are stripped of their cargo by crowds of Palestinians desperate for food, or looted by armed gangs.
The alternative food distribution system run by the Israeli-backed Gaza Humanitarian Foundation has also been marred by violence.
Doctor Tom Adamkiewicz, a paediatrician working at Nasser Hospital in Gaza, told Sky News that the majority of the hospital’s patients have signs of malnutrition – and “many children are passing out literally during the day and injuring themselves”.
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3:41
Gazan boy arrives in UK for treatment
Separately, German foreign minister Johann Wadephul also arrived in Israel on Thursday on a two-day trip that will also take him to the occupied West Bank.
Germany, traditionally a staunch ally of Israel, has been increasingly critical. Mr Wadephul warned that Israel is “increasingly finding itself in a minority position”.
But he stopped short of moving towards recognising a Palestinian state, something his allies France, the UK and Canada have vowed to do in Septemberif certain conditions are met.
Meanwhile, Sweden’s prime minister has called on the EU to “freeze” its trade agreement with Israel – with Ulf Kristersson describing the situation in Gaza as “utterly deplorable”.
After visiting Gaza, Mr Witkoff will travel to Russia. He has held extensive talks in Moscow with Vladimir Putin in the past.
The US president has given his Russian counterpart until 8 August to reach a deal to halt the fighting in Ukraine, or else he will impose economic sanctions.
A 15-year-old boy from Gaza brought to the UK for urgent medical treatment has told Sky News of his joy and relief.
Majd Alshagnobi arrived at London’s Heathrow Airport with his mother and two siblings to a hero’s welcome on Wednesday evening, with well-wishers bearing flowers, gifts, and banners.
It has been a tortuous wait for the teenager, who suffered severe facial injuries in February 2024 when Israeli tank shells exploded near him and a group of friends.
Majd lost part of his face as well as his entire jaw and all his teeth. It has left him and his family traumatised.
His mother, Islam, told me that doctors at the Mamadani hospital in Gaza were shocked that her son survived the incident.
“When Majd first got to the hospital, they thought he was dead because of the severities of the injuries on his face and leg,” she said. “But when he raised his arm, they realised he was still alive.
“All the operating rooms were busy, so they carried out the operation in the kitchen to save him.
“It was very difficult for him to breathe, and they had to feed him through tubes and syringes through his nose. He really suffered.”
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2:56
Sky News investigates: Gaza’s deadliest days
Majd stood awestruck at the window of the small central London apartment where his family had been accommodated. He wore a blue surgical mask but gently pulled it down to reveal a smile.
“Thank God I have the opportunity to receive treatment here… that’s the reason I have come. To get treatment,” he said. “Since I arrived, I have felt so much happier.
“We’ve been greeted in such a nice way, with gifts and things to help us.”
But it will take time for the young football fan to come to terms with the trauma he has suffered.
When I ask him what he remembers from his time in Gaza, he replies: “I saw dogs eating bodies and I was terrified, and I thought I was going to die. Stuff like that…”
Image: Majd Alshagnobi’s mother Islam
His mother, who has had to leave two of her children in Gaza with their father, tells me: “Right now my family in Gaza live in tents. We’ve lost our home, we’ve lost our memories, we’ve lost our dreams. Nothing is left in Gaza.
“My two children who are still in Gaza with their father, every day I wake up in fear that they have been killed. Anything could happen to them in Gaza.”
Around 5,000 children have been evacuated from Gaza, with the majority going to Egypt and Gulf countries.
Majd is the third child to come to the UK with the help of the charity Project Pure Hope.
The group of volunteers have been campaigning successive governments for the last 20 months to create a scheme which would allow for the evacuation of 30 to 50 children.
The charity has raised the money to bring the children and their families to the UK, and cover their medical costs, privately.
Last week, Prime Minister Sir Keir Starmer said the government was “accelerating efforts” to evacuate Gazan children who need urgent medical care in the UK.
Omar Din, the co-founder of Project Pure Hope, says it is time for the government to step in and take responsibility.
“We’re hoping following the prime minister’s announcement last Friday, that in the coming days we’ll have some concrete actions,” he said. “The more we wait, the more children die who we could be saving.
“We’ve done this privately because there was no other option available but myself, and members of my founding team, have done lots of this work for Ukrainian refugees previously. There’s no reason we shouldn’t be doing that for Gazans.”