After a bright start to the year fuelled by fresh hopes for the artificial intelligence sector, investors have taken fright since the US president ramped up his demands for the Danish autonomous territory, citing national security.
With Copenhagen and other European capitals pushing back, Trump on Saturday said he would impose 10 percent levies on eight countries -- including Denmark, France, Germany and Britain -- from February 1, lifting them to 25 percent on June 1.
The move has raised questions about the outlook for last year's US-EU trade deal, while French President Emmanuel Macron has called for the deployment of a powerful, unused instrument aimed at deterring economic coercion.
In response, US Treasury chief Scott Bessent said Monday that any retaliatory EU tariffs would be "unwise".
Trump ramped up his rhetoric against France on Tuesday, warning he would impose 200 percent tariffs on French wine and champagne over its intentions to decline his invitation to join his "Board of Peace" set up to oversee the rebuilding of Gaza.
The prospect of another trade standoff between two of the world's biggest economic powers has fuelled a rush to safety and dealt a blow to risk assets.
Asia equities extended Monday's losses.
Tokyo, Hong Kong, Sydney, Seoul, Singapore, Mumbai, Manila and Wellington were all down, while Shanghai was flat. Taipei, Bangkok and Jakarta edged up.
London, Paris and Frankfurt were also sharply lower for a second successive day.
Gold hit a fresh record of $4,722.76 and silver also peaked, touching $94.73.
Meanwhile, Treasury yields rose amid a move out of US assets fuelled by the uncertainty sparked by Trump's latest volley.
Japanese government bonds yields also rose -- with that on the 40-year note hitting the highest since it was launched in 2007 -- after Prime Minister Sanae Takaichi called snap elections Monday and pledged to cut a tax on food for a two-year period.
The announcement fuelled fresh worries the government will borrow more cash at a time when questions are already being asked about the country's finances.
Her cabinet approved a record 122.3-trillion-yen ($768 billion) budget for the fiscal year from April 2026, and she has vowed to get parliamentary approval as soon as possible to address rising prices and shore up the world's fourth-largest economy.
Eyes are now on Davos, Switzerland, where the US president is expected to give a speech to the World Economic Forum.
"Davos now becomes the theatre that matters. Not for soundbites, but for whether the adults step back into the room," wrote Stephen Innes of SPI Asset Management.
"If this turns sour, volatility will not stay bottled. What would normally be a Ukraine-focused week risks being hijacked by a far more destabilising question, namely, whether the transatlantic alliance is being stress-tested in public.
"A NATO fracture, even a rhetorical one, is not something markets are trained to shrug off."
- Key figures at around 0815 GMT -
Tokyo - Nikkei 225: DOWN 1.1 percent at 52,991.10 (close)
Hong Kong - Hang Seng Index: DOWN 0.3 percent at 26,487.51 (close)
Shanghai - Composite: FLAT at 4,113.65 (close)
London - FTSE 100: DOWN 0.8 percent at 10,116.01
Euro/dollar: UP at $1.1691 from $1.1641 on Monday
Pound/dollar: UP at $1.3477 from $1.3428
Dollar/yen: UP at 158.39 yen from 158.09 yen
Euro/pound: UP at 86.75 pence from 86.71 pence
West Texas Intermediate: UP 0.2 percent at $59.58 per barrel
Brent North Sea Crude: DOWN 0.3 percent at $63.76 per barrel
New York - Dow: Closed for a holiday
dan/fox
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