Stocks fall as Trump warns of US economy trade war 'transition'

Investors fear that tariffs - which are taxes on goods applied as they enter the country - will lead to higher prices and ultimately dent growth in the world's largest economy.

"The level of tariffs that Trump is imposing, I think no doubt, will have to cause inflation somewhere down the line," Rachel Winter, investment manager at Killik & Co, told the Today programme.

Economist Mohamed El-Erian said investors had been optimistic about Trump's plans for de-regulation and lower taxes, while under-estimating the likelihood of a trade war.

He said the recent falls in the stock market, which started last week, reflect the adjustment of those bets.

"It's a complete change in what the market expected," he added, noting that investors are also responding to signs that businesses and households are starting to hold off on spending amid the uncertainty, which could hurt economic growth.

European stocks closed lower on Monday, with France's CAC and the London FTSE indices both closing around 0.9% lower. Germany's DAX closed 1.75% lower.

Susannah Streeter, head of money and markets at the stockbrokers Hargreaves Lansdown, said it was because of "unease around the impact of Trump tariffs". She added that concerns over the US economy entering a recession is worrying investors.

Tesla shares fell about 8% on Monday, while tech stocks Nvidia and Meta were both down more than 4%.

Speaking to Fox News in an interview broadcast on Sunday but recorded on Thursday, Trump appeared to acknowledge the concerns, responding to a question about whether the US was facing recession: "I hate to predict things like that. There is a period of transition because what we're doing is very big. We're bringing wealth back to America. That's a big thing."

"It takes a little time, but I think it should be great for us," he added.