Global stock markets partially recovered from sharp falls earlier on Monday as investors scrambled to react to US President Donald Trump imposing trade tariffs on Canada and China, but delaying similar measures for Mexico.
The FTSE 100 had slumped early in the day, as Mr Trump said the UK is “out of line”, but eventually made a partial comeback to close 1% down.
It was still the biggest one-day drop of 2025 so far, but the UK’s blue chip share index was shielded from the worst of the falls as the US president said he thinks a deal “can be worked out” with Britain.
European stocks suffered steeper declines, after Mr Trump said tariffs on goods from the EU will “definitely” happen.
The Cac 40 in France and Germany’s Dax both slumped early in the day, but finished about 1.3% and 1.5% down, respectively.
It follows Mr Trump’s move over the weekend to slap harsh 25% tariffs on Canada and another 10% on China.
The policy has sparked fears of a global trade war, after Canada was quick to retaliate with tariffs of its own.
Meanwhile, Mr Trump agreed to pause similar tariffs on Mexico after the country’s president, Claudia Sheinbaum, agreed to deploy troops to its border with the US in last ditch talks.
The agreement appeared to allay some investor fears, with Wall Street stocks jumping shortly after the news to reverse similar falls in early trading.
The S&P 500 was 0.6% down as UK markets were closing, while the Dow Jones was just 0.2% down.
Nonetheless, the tariffs on Canada and China, due to take effect on Tuesday night, have sparked fears of a global trade war, with similar tit-for-tat measures being implemented more widely.
Kathleen Brooks, research director at trading firm XTB, said: “Although the declines are sharp, there is a sense that they could have been worse.”
She said Monday’s market moves suggest investors expect “temporary tariffs only”, but adding that means the longer they last, “the more damaging they will be to the global economy”.
“Thus, if Trump does not reverse course on tariffs, then this could be the calm before the storm for stock markets.”
Asian markets suffered heavy falls overnight as they were the first to react, with Japan’s Nikkei slumping 2.7% and the Hang Seng in Hong Kong 1% lower.
Mainland Chinese markets remain shut for the Chinese Lunar New Year holiday until Wednesday.
Carmakers were among the biggest share casualties in Europe, with Volkswagen, Mercedes-Benz, BMW, Daimler Truck, Continental and Porsche dropping in value.
Cars are among the EU’s biggest exports to the US, but are also one of Mr Trump’s major gripes with the trade deficit that the US has with the bloc.
In the UK, luxury car firm Aston Martin closed the day about 2.4% lower.
The pound bounced back from early falls against the US dollar, up about 0.6% at 1.23 dollars as markets were closing.
