Global markets reeled Monday as escalating trade tensions between the United States and its key partners deepened investor anxiety, with U.S. President Donald Trump reaffirming his commitment to eliminating trade deficits—particularly with China—despite mounting financial turmoil.

Speaking aboard Air Force One over the weekend, Trump denied any intention to stoke market chaos but reiterated that fixing the U.S. trade imbalance with China remains a top priority. “I don’t want anything to go down, but sometimes you have to take medicine to fix something,” he said, adding that the U.S. loses “hundreds of billions of dollars a year” to China and that no deal would be made until the deficit is addressed.

His comments followed a dramatic escalation in the global trade war last week, when the White House announced unexpectedly high reciprocal tariffs. In retaliation, China imposed 34% tariffs on all U.S. imports, marking one of the most severe responses in the ongoing standoff.

Trump also took aim at Europe, demanding not just annual payments but also financial reparations for past trade imbalances. “We put a big tariff on Europe. They are coming to the table, they want to talk—but there’s no talk unless they pay us a lot of money on a yearly basis,” Trump said.

The intensifying rhetoric sent shockwaves through global equity markets during Monday’s Asian session. Hong Kong’s Hang Seng Index opened nearly 10% lower following a holiday break, erasing most of its 2025 gains. Earlier optimism around Beijing’s stimulus pledges and AI-related growth had pushed the index up 24% year-to-date before tumbling post-tariff announcement. As of Monday, the Hang Seng was up just 3.2% for the year.

Japan’s Nikkei 225 fell 6% in early trading, hitting an 18-month low and entering bear market territory after falling over 20% from January highs. South Korea’s Kospi shed more than 4%, and Australia’s ASX 200 dropped nearly 4% before partially recovering.

“There could be big rallies this week on positive headlines. But there won’t be a sustained recovery until Trump signals he won’t escalate tariffs further,” said Kyle Rodda, senior market analyst at Capital.com.

U.S. stock futures also extended losses, with S&P 500 futures down 3.5%, Nasdaq off 4.5%, and Dow futures slipping 2.9% by early morning European time. The CBOE Volatility Index (VIX), often referred to as Wall Street’s “fear gauge,” surged 51% last week to above 45—a level not seen since the 2020 pandemic crash.

European markets braced for impact, with major indices already reeling from last week’s declines. The Euro Stoxx 600 fell 7.4%, Germany’s DAX dropped 6.9%, and France’s CAC 40 slipped 7.1%.

“This morning’s note is going to be a depressing one,” wrote Michael Brown, senior analyst at Pepperstone London. “I’m quickly running out of adjectives to describe how gloomy sentiment is becoming, and how grim the economic outlook now appears.”