Analysts said there is now a growing fear that the White House has set itself on a more hardline course.
Asian markets staged a recovery from early losses Thursday but investors stayed cautious as trade war fears return to the fore, with worries Donald Trump will go full-steam ahead with his “America First” protectionist agenda.
Investors were back on the ropes after the U.S. said Wednesday it would take action at the World Trade Organization against Indian export subsidies.
That came soon after it emerged Trump is considering tariffs on billions of dollars in Chinese tech and telecoms imports as he takes aim at alleged intellectual property breaches by Beijing.
The news saw a return to volatility after a few days of respite from last week’s controversial announcement of levies on steel and aluminium imports.
Adding to the unease among traders is the departure of market-friendly economics advisor Gary Cohn this month and Tuesday’s sacking of moderate secretary of state Rex Tillerson.
On Wednesday, Trump tapped conservative TV pundit and longtime free-market advocate Larry Kudlow to replace Cohn.
Analysts said there is now a growing fear that the White House has set itself on a more hardline course, which could upend global trade as well as impact on key geopolitical issues, particularly the Iran nuclear deal.
Trump is “cleaning house with the establishment picks and putting like-minded thinkers around him”, said Greg McKenna, chief market strategist at AxiTrader.
His “growing confidence — born of success with tax and hopefully North Korea, among other things — means he is emboldened to prosecute his ‘America First’ agenda. That means… there is a real risk that a trade war actually breaks out”, McKenna added. “That ultimately can’t be good for growth.”
There is now speculation the president will look to oust other top members of the White House including Chief of Staff John Kelly and Attorney General Jeff Sessions.
All three main Wall Street indexes ended deep in the red, and the selling carried on early in Asia before an afternoon bounce saw losses pared and, in some cities, a return to positive territory.
Tokyo ended 0.1 percent higher, while Hong Kong rose 0.3 percent in the afternoon. Seoul and Wellington also closed up, having been down earlier.
But Sydney and Taipei each fell 0.2 percent, while Singapore and Jakarta lost 0.5 percent. Taipei eased 0.2 percent and Manila sank 1.5 percent. Shanghai was marginally lower.
The greenback took a hit from the yen as trade war worries sent investors chasing safe-haven assets, while a disappointing retail sales figure for February dented expectations the Federal Reserve will lift interest rates more than three times this year.
The retail result came after a soft inflation reading, though the U.S. central bank is still widely expected to tighten borrowing costs when it meets next week.
The euro is also holding up despite European Central Bank boss Mario Draghi tempering talk of an end any time soon of its crisis-era stimulus.
Bitcoin sank more than 10 percent to around $7,850 — its lowest level since the start of February — after Google said will ban adverts for cryptocurrencies and initial coin offerings.
The news comes as regulators around the world look to tighten control of the cryptocurrency sector after a wild rally last year that saw bitcoin hit almost $20,000 in December, having soared from less than $1,000 in the preceding January.