Fears of a trade war are roiling financial markets Friday, with stocks under pressure around the world and the dollar in retreat.

A day after the Trump administration imposed tariff hikes on Chinese goods, Beijing has threatened import duties on U.S. goods including pork, apples and steel pipes, accentuating fears of a global trade war.

“For a person who’s been obsessed with stock market gains since his election victory 16 months ago, President Donald Trump doesn’t appear too concerned about the impact his tariffs are having at the moment,” said Craig Erlam, senior market analyst at OANDA.

Though the European Union has been granted a possible exemption, stock markets across the region have fallen sharply. In early afternoon trading, Germany’s DAX was down 1.7% at 11,900 while the FTSE 100 index of British shares fell 0.6% to 6,910. France’s CAC-40 was 1.5% lower at 5,089.


In Asia, markets ended sharply lower after a stomach-churning ride. Japan’s benchmark Nikkei 225 index plunged 4.5% to 20,617.86, its second-biggest daily decline in a year, and South Korea’s Kospi tumbled 3.2% to 2,416.76. Hong Kong’s Hang Seng lost 2.5% to 30,309.29 and the Shanghai Composite in mainland China sank 3.4% to 3,152.76. Australia’s S&P/ASX 200 skidded 2% to 5,820.70.

A day after the Dow Jones industrial average dropped more than 700 points, Wall Street was poised for a steadier session. Dow futures and the broader S&P 500 futures were down a modest 0.2%.

Trump is planning to impose tariffs of 25% on imported steel and 10% on aluminum. The move is aimed at China, which has been flooding the world with cheap steel and aluminum, but would hurt many other countries, including close allies like the European Union. Trump’s administration gave some countries, including the EU, Canada and Mexico, an exemption until May 1, pending negotiations.

EU Trade chief Cecilia Malmstrom said the plans for steel and aluminum tariffs “are a highly unfortunate unilateral action, which goes against agreed international rules.”


In a separate case, the Trump administration approved a possible tariff hike on Chinese imports worth up to $60 billion over its complaint that Beijing steals or forces foreign companies to hand over technology.

China gave no indication of a possible response but a foreign ministry spokeswoman said Beijing was “fully prepared to defend” its interests.

“Everybody’s pushing each other around to do some negotiating,” said David Collins, chief operations officer at CMC China Manufacturing Consultants, which advises companies on setting up factories in China. “Trump is negotiating. He’s pushing back on the Chinese, and the Chinese will push back.”

On Thursday, investors fled stocks and bought bonds, which sent bond prices higher and yields lower. With interest rates falling, banks took some of the worst losses. Technology and industrial companies, basic materials makers and healthcare companies also fell sharply.


Peter Donisanu, an investment strategy analyst for the Wells Fargo Investment Institute, said the risk of a damaging trade war is still low because the Trump administration is targeting specific goods that aren’t central to China’s economy. That could change if it puts tariffs on products like electronics or appliances imported from China.

“If the Trump administration really wanted to hurt China and start a trade war, then they would go after those larger sectors,” he said.

The risk of a U.S.-China trade war is a regional concern, given the myriad supply chains and other ties across Asia. For example, South Korea’s largest trading partner is China. The U.S. is its second biggest.

“I’m worried that it would affect the national economy,” said S. E. Kim, an employee at a construction company in Seoul. “If the U.S. imposes tariffs on China like that, I think there would be some damage on us in the long term as well.”


The dollar has suffered on concerns over a possible trade war. The euro was up 0.4% at $1.2345 while the dollar fell 0.2% at 105.08 yen.

UPDATES:

5:45 a.m.: Updated with data from Europe.

This article was first published at 12:25 a.m.