Japan’s Nikkei 225 tumbles 4%, South Korean shares drop over 2% after Trump’s tariff announcement

Asian financial markets experienced significant downturns following President Donald Trump's recent announcement of sweeping new tariffs. The Nikkei 225 index in Japan plummeted by 3.4%, while South Korea's Kospi index dropped 2.6%, reflecting widespread investor concern over potential trade wars and economic instability. ​

President Trump's tariff plan includes a baseline import tax of 10%, with higher rates targeting specific countries: 34% on China, 20% on the European Union, 24% on Japan, and up to 49% on certain developing nations. These measures are set to take effect in early April. ​

The announcement has led to a surge in market volatility. The CBOE Volatility Index, a key measure of market expectations, reached a two-week high as investors grappled with the potential impact on global trade and economic growth. ​

In response to the escalating trade tensions, investors have been shifting towards safe-haven assets. The Japanese yen appreciated by 1% against the U.S. dollar, and gold prices reached new highs. ​

Hedge funds have been actively reducing their exposure in Asian markets ahead of the tariff implementation. Significant selling and lower leverage positions have been observed in South Korea, onshore Chinese markets, and Taiwan, while short positions have increased in Japan. ​

The automotive sector has been particularly affected by the tariff announcement. Global automaker stocks fell sharply after President Trump announced a 25% tariff on foreign-made cars and auto parts not compliant with the US-Mexico-Canada Agreement (USMCA). This announcement has raised concerns about potential price increases for cars produced in Canada and Mexico. ​

International leaders have expressed criticism of the tariffs. New Zealand, unexpectedly hit with a 10% tariff, expressed confusion, citing its low import tariffs on U.S. goods. The European Union is preparing measured retaliatory moves, with hopes of negotiation. President Trump justified the tariffs as corrective measures to address perceived trade injustices and emphasized national economic liberation. ​

The global economic outlook remains uncertain as markets and policymakers assess the potential ramifications of these tariffs on international trade and economic stability.