European Markets in Freefall as Trade Wars Spark Economic Chaos

European stock markets faced significant declines on Monday as economic fears intensified, fueled by U.S. President Donald Trump’s tariffs, which he described as “beautiful.”

Goldman Sachs has raised the probability of a U.S. recession to 45%, up from 35%, marking the second increase in a week and a stark rise from an earlier 20% estimate. The investment bank’s revised forecasts reflect growing concerns that Trump’s tariffs could destabilize the global economy. Following the announcement of steeper-than-expected duties, a sell-off in global markets ensued, prompting at least seven major investment banks, including J.P. Morgan, to revise their recession risk assessments. J.P. Morgan now places the likelihood of a U.S. and global recession at 60%.

On Sunday, Goldman Sachs also downgraded its economic growth forecast for the U.S. in 2025 to 1.3%, down from 1.5%. In contrast, Wells Fargo Investment Institute anticipates a mere 1% growth, while J.P. Morgan predicts a potential 0.3% contraction on a quarterly basis.

In Japan, Prime Minister Shigeru Ishiba is expected to discuss the tariff situation with Trump in a phone call set for 9 p.m. local time. The Japanese stock market, notably the Nikkei, has seen significant declines, reaching its lowest levels since 2023. Ishiba has expressed the government’s commitment to negotiate with Trump on tariff reductions, acknowledging that results may not come swiftly. He emphasized the need for robust measures to support domestic firms and protect jobs in light of the economic impact from U.S. tariffs.

During an EU trade ministers’ meeting in Luxembourg, Swedish Trade Minister Benjamin Dousa stated that all options for countermeasures against U.S. tariffs are on the table, indicating a readiness for dialogue on the matter. Polish Prime Minister Donald Tusk remarked on the market volatility, emphasizing the importance of political and economic stability in navigating these turbulent times.

Trump, speaking to reporters aboard Air Force One, suggested that sometimes “you have to take medicine to fix something,” underscoring his support for the tariffs that have led to a two-day market selloff, erasing trillions in equity values.

Analysts have shared their insights on the market’s response to the ongoing trade tensions. Tim Graf, head of EMEA macro strategy at State Street in London, warned that the current situation may be a historically significant event. Francois Savary, chief investment officer at Genvil Wealth Management in Geneva, highlighted a sense of market capitulation and increased volatility, expressing concerns about the U.S. administration’s clarity on the path forward.

Karen Jorritsma, head of equities at RBC Capital in Sydney, pointed out the challenges posed by Trump’s administration, questioning what could lead to a resolution. Matthew Rubin, chief investment officer at Cary Street Partners in New York, noted that clients are increasingly turning to private markets to mitigate daily trading volatility.

China has condemned the U.S. tariffs as unilateral and bullying tactics, calling on other nations to uphold a commitment to consultation and multilateralism. A Chinese foreign ministry spokesperson criticized the U.S. approach, asserting that it undermines the rights of countries, particularly those in the Global South, and exacerbates global inequalities.

Meanwhile, the British automotive industry is feeling the strain of the tariffs, prompting the UK government to soften its demands on automakers regarding the transition to electric vehicles. The sector, which heavily relies on the U.S. market, welcomed the adjustments but stressed the need for further protective measures against the 25% tariffs on car imports imposed by the U.S. in April. Jaguar Land Rover’s recent announcement to pause U.S. shipments for a month underscores the industry’s growing concern.