Asian markets retreat as tariff war escalates

June 02, 2025 (MLN): Asian shares dropped alongside U.S. stock-index futures as trade tensions flared, prompting investors to retreat from risky assets. Gold rose amid growing demand for safe havens.

Indexes in Japan and Australia opened lower. U.S. equity-index futures slipped 0.3% after President Donald Trump announced plans to double tariffs on steel and aluminum imports and accused China of violating a trade agreement aimed at reducing tariffs.

Treasuries declined, with the 10-year yield climbing by 1 basis point. Gold advanced 0.7% after falling last week.

A measure of the dollar edged lower as China called on the U.S. to uphold the consensus reached during recent Geneva talks.

The yen strengthened. Crude oil climbed, despite OPEC+ agreeing to a smaller-than-expected output increase.

Markets remained on edge after last week’s legal wrangling over Trump’s record-setting tariffs, which investors fear could push the U.S. economy into recession.

In addition to trade tensions, market participants are monitoring a sweeping tax bill that may expand the U.S. deficit.

“The end of May is a precursor to the larger risks for June and the end of the second quarter,” wrote Bob Savage, head of markets macro strategy at BNY.

“The shift in mood this month highlights how markets have gone from unpredictable to merely uncertain, as concerns about trade, fiscal spending and monetary policy continue to drive prices.”

Trump claimed China “violated a big part of the agreement we made” in Geneva, escalating the dispute and threatening the fragile tariff truce between the world’s two largest economies.

In response, China urged the U.S. to maintain stable trade relations and warned it would take “resolute and forceful measures” to protect its interests if provoked further.

Asian steel and aluminum stocks declined following Trump’s tariff hike announcement, raising duties from 25% to 50%.

Traders in Asia are now turning attention to Hong Kong, after Chinese factory activity data showed contraction at a slower pace in May compared to April. Mainland markets remain closed for a holiday.

May marked the first monthly loss for U.S. Treasuries this year, as investors grappled with renewed trade uncertainty and rising concerns over government debt.

The 30-year yield rose for the third straight month—its longest such streak since 2023 as Trump contends with Congress over a proposed tax-cutting bill, as CNBC reported.

Treasury Secretary Scott Bessent over the weekend reassured markets that the U.S. “is never going to default,” even as the deadline for lifting the federal debt ceiling draws near.

“Shares are at high risk of renewed falls given the ongoing tariff uncertainties, concerns about U.S. debt, likely weaker growth and profits and the risk of a U.S./Israeli strike on Iran’s nuclear capability if diplomacy doesn’t work,” wrote Shane Oliver, chief economist at AMP Ltd.

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