Trump’s trade measures, announced after Wall Street’s closing bell on Wednesday, were much more severe than many investors were anticipating. They included a 10% baseline levy on all U.S. imports, with much higher duties imposed on some countries.
Investors worried that trading partners could retaliate, with one saying that could lead to an economic “spiral of doom.”
“We’re talking about a pretty significant regime change in how the U.S. approaches global trade,” said Michael Reynolds, vice president of investment strategy at Glenmede in Philadelphia. “And when you have a regime change like this that happens suddenly… it doesn’t surprise us to see a relatively violent market reaction.”
With the prospect of higher prices in an already slowing U.S. economy that depends on the consumer for growth, investors bet on a much higher likelihood of a recession.
“It’s just left everybody in shock,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions in Boston, adding that “a lot of the pain, will probably most acutely be felt in the U.S. and that certainly would weigh on broader global growth as well.” Many investors had hoped Trump’s highly anticipated announcement would clear the uncertainty over tariff policy that has dogged markets for weeks, but Melson pointed out that investors were still grappling with a lot of unanswered questions. “We’ve details but there’s absolutely no clarity,” he said. “We have numbers and we have an idea of how they got to those numbers … but we don’t know how long these are going to stick. We don’t know if there’s really any room for negotiating.”
So far, Washington has said the base 10% tariffs will go into effect on April 5 and the higher rates on April 9.
Tariffs of 25% on vehicle imports took effect at midnight. The new levies include a 34% tariff on imports from China, 46% on Vietnam, 24% on Japan and 20% on Europe.
Retaliation against Trump’s tariffs is likely, said Justin Onuekwusi, chief investment officer at St James’s Place, “but it’s clear countries will think about how to retaliate in a politically astute way.”
“Significant retaliation could lead to a tariff ‘spiral of doom’ that could be the growth shock that drags us into recession.”
Trump called Wednesday “Liberation Day,” but U.S. investors joined the selloff along with those in Asia and Europe. The dollar fell sharply against major currencies and the S&P 500 tumbled more than 3% while the Nasdaq Composite sank over 4%.
In U.S. Treasuries 10-year yields fell to just above 4%, their lowest level since mid-October.
On Wall Street, the biggest drags on the S&P 500 were from highly valued megacap investor favorites. Apple was down about 8% and Amazon.com, fell around 7%. Artificial intelligence chip leader Nvidia, sank about 6%.
Technology and consumer discretionary, both down off over 5%, led declines in the S&P’s 11 major industry indexes. The defensive consumer staples sector was the biggest gainer, up more than 1%.
European shares fell with the STOXX 600 down 2.7%. The euro was up 1.6% against the dollar.
Fed funds futures rallied as investors priced in more interest rate cuts by the Federal Reserve this year.
The U.S. dollar index sank to a six-month low with the greenback falling the most against safe havens, putting it off 2% against the yen and down about 2.5% against the Swiss franc.
“Coming into this year, there was this assumption that this administration would be brilliant for the U.S. economy and difficult for the rest of the world,” said Hugh Gimber, global market strategist at J.P. Morgan Asset Management in London. “It’s increasingly evident this policy mix in the U.S. is more difficult for the U.S. itself.”
‘NO ONE LIKES WHAT THEY SEE’
European Union chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures.
Trump in his speech spoke of “fairness” and some investors saw potential for negotiations.
In China, which had braced for tariffs and where most revenue is earned locally, selling in stocks and the currency was more contained.
“Investors are clearly concerned about retaliation by other governments that could lead to a global recession,” Oliver Pursche, senior vice president at Wealthspire Advisors in New York. “But we’ve also learned just over the last couple of months… on-and-off again tariffs are not unusual for (Trump). So we’ll have to see how long the tariffs stay in place.”
The market had already swooned on jitters about tariffs. In mid-March the S&P 500 confirmed a correction, a drop of 10% from a recent high. With Thursday’s dive, the index was down about 11% below its February record high.
“People were talking earlier about whether clarity would boost the market,” said Jeanette Garretty, chief economist at Robertson Stephens.
“But now you have clarity, and no one likes what they see.”
