Global Markets Plummet Amid Trump Trade War Fears

Global markets plunged Tuesday after President Donald Trump reignited fears of a U.S. trade war with the European Union, America's largest trading partner. The president showed no signs of backing off his threat from Saturday to hit seven E.U. countries and the United Kingdom with new tariffs unless they supported his push for American control of Greenland. Asked if he would be willing to use force to seize the semi-autonomous Danish territory, Trump replied, “No comment,” in a brief telephone interview with NBC News on Monday. The S&P 500 sold off by around 1.3% in early trading, while the Nasdaq Composite plunged 1.7%. The Dow Jones Industrial Average dropped more than 600 points. U.S. markets were closed Monday in observance of Martin Luther King Jr. Day. The S&P 500 has erased its gains for the year so far. Investors also sold off U.S. government bonds, driving up interest rates. Rising returns on U.S. treasuries usually translate into higher mortgage rates and interest on new personal loans. A global sell-off Markets in Europe also saw sharp drops for the second day in a row Tuesday. Germany's benchmark DAX index dropped 1.2%, Britain's FTSE 100 fell 1% and Italy's FTSE MIB slid 1.3%. The STOXX Europe 600, Europe's equivalent to the S&P 500, tumbled 1.1%, with all but a handful of the hundreds of stocks on that index in the red. The CBOE Volatility Index, also known as Wall Street's fear gauge, rose to its highest level since mid-November on the blizzard of risks facing investors. Precious metals, viewed as safe haven assets in times of turmoil, also rose to record highs. Gold and silver both jumped more than 1%. The ICE U.S. Dollar Index, a measure of the dollar’s strength against international currencies, dropped nearly 1% in early trading, putting it on course for its worst day since April, when Trump announced his “reciprocal” tariff agenda and sparked a sell-off in U.S. equities and bonds. Trump threatened even more tariffs late Monday, as he boarded Air Force One in Florida. Asked about French President Emmanuel Macron's decision to turn down Trump's invitation to join a "Board of Peace" that would initially focus on Gaza, the president told reporters, "I'll put a 200% tariff on his wines and champagnes and he’ll join, but he doesn’t have to join." France's benchmark CAC 40 stock index dropped around 0.9% Tuesday. Fixed income jitters U.S. government bonds also sold off, sending yields soaring. The yield on the 10-year U.S. Treasury bond hit its highest levels since August, and 30-year yields rose to their highest levels since September. A decision by the Japanese prime minister to call for snap elections added to bond investors' concerns. This uncertainty was compounded by the possibility that the U.S. Supreme Court could rule in the near future on the legality of Trump's sweeping, country-based tariffs. The Court did not issue a ruling on Tuesday. When Treasury yields rise, typically so do mortgage rates and interest charged on personal loans, auto loans and more. Higher interest rates could also complicate a domestic affordability push by the Trump administration in a U.S. election year. In recent weeks, the White House has deployed an arsenal of policy tools aimed at lowering the cost of living for American consumers. European officials say that leaders will hold an emergency summit Thursday to consider retaliating against Trump's Greenland tariffs, and that a package of more than $100 billion in counter-tariffs is at the ready. Some E.U. leaders have also backed deploying what's known as the bloc's "trade bazooka," an anti-coercion instrument created to counter hostile states like China. The 'sell America' trade "This is 'sell America' again within a much broader" global ripple effect, Krishna Guha of the investment bank Evercore ISI wrote Tuesday morning. Guha was using a term coined in April 2025, after Trump rolled out a global tariff agenda with sky-high rates on dozens of countries. Fearing America was no longer a reliable trade partner, investors sold off U.S. stocks and bonds, and looked to metals and international stocks to help hedge the risk. The sell-off likely would have been worse, he said, if investors were not optimistic that the Supreme Court will curtail Trump's tariff authority and that his administration will back off its latest threats of additional import duties. "The impacts would be very severe if this goes off the rails, and there will be long-lasting implications, including for the dollar," Guha wrote. Citigroup’s Scott Chronert wrote in a client note, "We are only two weeks into the new year and the number and magnitude of impacts on U.S. equity markets is already dizzying." Sergio Ermotti, the chairman and CEO of Swiss banking giant UBS, said, "I don't see any path to normalization in the near future." “There is a limit on how many things you can put on the table without eventually one of them going out of control and then creating the kind of volatility you see now,” Ermotti said during a CNBC interview at the World Economic Forum in Davos, Switzerland. Treasury Secretary Scott Bessent dismissed critics of the administration's latest moves, and accused them of having "gone into hysterics." "The U.S. is a reliable partner," he told CNBC in an interview Tuesday. "Everyone take a deep breath. Do not escalate. Do not escalate," Trump's top economic official said. "President Trump has a strategy here. Hear him out, and then everything will be fine."