Markets across the Asia-Pacific region saw a downturn on Tuesday as investors reacted to the latest U.S. tariff threats involving Greenland, which has sparked fears of an intensifying trade conflict with Europe.

In response to President Donald Trump’s new tariff threats, European nations are reportedly contemplating retaliatory tariffs and other economic countermeasures, further complicating diplomatic relations surrounding Greenland.

On Saturday, Trump declared that exports from eight European countries would face a 10% tariff starting February 1, escalating to 25% by June 1, unless negotiations succeed in handing over control of Greenland to the U.S. This island, rich in minerals, currently falls under Danish jurisdiction.

The Hang Seng Index in Hong Kong experienced a slight rise of 0.29% to close at 26,487.51. Meanwhile, China’s CSI 300 index declined by 0.33% to 4,718.88, amid increased regulatory scrutiny following a surge in trading activities.

Authorities have started to limit leverage as onshore market turnover has reached unprecedented levels, partly due to a historic increase in margin trading balances.

Despite the tightening, Standard Chartered’s Raymond Cheng said the bank remains positive on China A shares, citing a stabilizing economy and expected fiscal policy support at China’s upcoming policy meetings in March 2026.

“We view the strength of China equities as sustainable, given policy stimulus to add further upside to our projected mid-teen earnings growth for the forward 12 months,” the bank’s regional chief investment officer for Greater China said.

Investors are closely watching developments in Japanese markets after Prime Minister Sanae Takaichi said on Monday that she plans to dissolve parliament and call a snap election on Feb. 8.

Japan’s Nikkei 225 slid 1.11% to close at 52,991.1 while the Topix declined 0.84% to end at 3,625.6. South Korea’s Kospi declined 0.39% to 4,885.75 after hitting a record high, while the small-cap Kosdaq jumped 0.83% to 976.37.

Yields on Japan’s 40-year government bond rose to 4% for the first time.

Japan’s ruling coalition holds a one-seat Lower House majority following its formation in October, when Takaichi became prime minister after her predecessor resigned. While the snap election would raise near-term political uncertainty, it could bring greater policy clarity if a government emerges with a stronger mandate, Fitch Group said in a note.

Fitch expects government debt to remain elevated over the medium term, but to gradually decline as stronger nominal GDP growth offsets wider fiscal deficits and higher borrowing costs.

Consolidated general government debt is projected to ease to the mid-190% range of GDP by fiscal 2029, from an estimated 199.5% in fiscal 2025 and a peak of 222% in fiscal 2020.

Australia’s S&P/ASX 200 lost 0.66% to 8,815.9.

U.S. stock futures pointed to a downbeat session on Wall Street as Trump intensifies his rhetoric on Greenland.