United States stock markets plummeted on Monday amid fears that President Donald Trump’s tariff policies might drive the world’s largest economy into recession. After years of impressive growth, America’s economic exceptionalism has been called into question.

Concern over an economic downturn has driven a stock market rout that wiped $1.7 trillion from the S&P 500 – the world’s most-watched equity index. It fell by 2.7 percent, dragging it 9 percent below the all-time high it reached on February 19.

The tech-heavy Nasdaq-100 posted its worst day since 2022, wiping out more than $1 trillion in value. Investors sold shares in the so-called “magnificent seven” – Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia and Tesla.

What caused the slump?

The market selloff comes as Trump’s back-and-forth tariff announcements have unnerved investors and stoked fears that the US economy could be headed for a major slowdown, or even a recession.

Last week, Trump slapped a 25 percent tariff on imports from Mexico and Canada and doubled the rate on Chinese goods to 20 percent, only to announce two days later that he would delay some Mexican and Canadian tariff hikes until April 2.

Trump has also threatened to impose a global regime of reciprocal tariffs: every country will face the same levy it chooses to impose on US goods from April 2. A 25 percent tariff on imports of steel and aluminium is also set to take effect on Wednesday.

Tariffs look set to increase inflation and consumers will bear the brunt of the higher costs. Many Americans could be forced to tighten their belts, which would lower growth and raise unemployment.

Ongoing public sector cuts and geopolitical tensions have also amplified US policy volatility. On CNBC, Holger Schmieding, chief economist at Berenberg Bank, described Trump as an “agent of chaos and confusion”.

“What is coming out of the Oval Office … is just complete indecisiveness, confusion and mixed messaging and the investing community losing confidence,” Peter Tuchman, a stock exchange trader, said in a video posted on X.

What did Trump actually say?

In an interview with Fox News that aired on Sunday, Trump suggested that the risk of an economic downturn – if it were to happen – would be worth it in the cause of the broader economic shifts he is trying to engineer.

“I hate to predict things like that. There is a period of transition because what we’re doing is very big,” Trump said. “We’re bringing wealth back to America. That’s a big thing … It takes a little time, but I think it should be great for us.”

Asked whether he thought tariffs on US imports would increase inflation, he said, “You may get it. In the meantime, guess what? Interest rates are down.”

He also doubled down on his trade protectionist agenda, saying, “We [the US] have been ripped off at levels never seen before, and we’re going to get a lot of it back.”

How has the White House responded?

As Wall Street panicked yesterday, the White House maintained an optimistic outlook, pointing to major investment pledges from corporate leaders.

White House spokesperson Kush Desai said on Monday that CEOs had responded to Trump’s “America First” agenda, which is marked by tariffs and deregulation, by pledging “trillions in investment commitments.” These commitments, he said, “will create thousands of new jobs”.

Meanwhile, in an interview with CNBC on Monday, Kevin Hassett, the head of Trump’s National Economic Council, played down financial market wobbles as “blips in the data”.

Howard Lutnick, Trump’s commerce secretary, told NBC’s Meet the Press: “There’s going to be no recession in America … you are going to see over the next two years the greatest set of growth coming from America,” Lutnick said.

Have Wall Street jitters spread elsewhere?

Asian stocks fell sharply on Tuesday morning, as the previous day’s US market selloff extended globally. Japan’s Nikkei stocks slid about 3 percent, hitting their lowest level since September.

Chinese stocks were also not immune to the downbeat mood. The blue-chip index fell 0.5 percent, while Hong Kong’s Hang Seng Index was 0.8 percent lower. Australia’s benchmark index also dropped by 0.8 percent.

Safe haven assets – which investors flock to in periods of market uncertainty – are now in demand, with the Japanese yen touching a five-month high against the dollar, at 147.07 per dollar. The Swiss franc has also strengthened. Both currencies are considered stable due to their predictable economic backdrops and low inflation environments.

Gold, long considered financially secure, inched up to $2,895.75 per ounce, within touching distance of the record high it hit last month. Gold is now up 10 percent so far in 2025, after climbing 27 percent last year.

Oil prices, which typically move in tandem with global gross domestic product, fell for a second day on Tuesday. Brent futures, the global benchmark, dropped by 0.65 percent to $68.83 a barrel.

What will happen next?

Unlike Trump’s first term, when cracks in the economy or stock market wobbles often led to policy pivots, the US president seems determined to follow through on restrictive trade arrangements this time around.

In turn, Citi analysts cut their recommendation for US stocks to “neutral” from “overweight”, arguing the US economy may no longer outpace the rest of the world in the coming months.

Goldman Sachs economists last week raised its odds of a recession within the next 12 months from 15 percent to 20 percent, while JPMorganChase has lifted the probability from 30 percent to 40 percent “owing to extreme US policies”.

The yield (or rate of return) on a two-year US government bond, which moves in step with interest rate expectations, fell 0.05 percent yesterday to a five-month low. As such, many expect the US Federal Reserve to lower borrowing costs.

The Fed’s benchmark rate currently sits at about 4.3 percent, which is high by recent historical standards.

Traders are now pricing in a 0.85 percent cut in interest rates from the Fed this year, compared with 0.75 percent basis points on Monday, according to the London Stock Exchange Group. Lower borrowing costs are designed to help spur growth in a slowing economy.

Prashant Newnaha, a senior Asia Pacific rates strategist at TD Securities, told the Reuters news agency that “markets have now gotten the memo that the administration is intent on ripping the band-aid off”.

Since his first day in office, Trump has stated his desire to tame US inflation. At the same time, he’s made trade tariffs central to his presidency. He’s unlikely to achieve both policy aims at the same time.

“Recession may be the medicine to create disinflation … for now it’s a controlled demolition,” Newnaha said.