Trade War Sets Off ‘Max Pessimism’ in Global Markets as Stocks Plunge

 

Trade War Sets Off ‘Max Pessimism’ in Global Markets as Stocks Plunge

 

The S&P 500 fell almost 5 percent on Thursday, its worst drop since June 2020, as President Trump’s higher-than-expected tariffs set off another round of economic worry.

 

By Joe RennisonDanielle KayeRiver Akira Davis and Eshe Nelson

Joe Rennison and Danielle Kaye reported from New York, River Akira Davis from Tokyo, and Eshe Nelson from London.

https://www.nytimes.com/2025/04/02/business/trump-tariffs-global-stock-markets.html

Published April 2, 2025

Updated April 3, 2025

 

President Trump’s escalation of a global trade war on Thursday fueled the worst stock market sell-off since the coronavirus pandemic, as investors worried that the steep tariffs imposed on America’s trading partners would push the economy into a downturn.

 

The S&P 500 fell almost 5 percent on Thursday, its worst showing since June 2020, when the world had been plunged into a health crisis that brought much of everyday life to a halt.

 

The index, which had already fallen five of the last six weeks, tipped into correction territory, which means it has declined more than 10 percent from its latest peak and which is a line in the sand for investors assessing the severity of a recent drop.

 

The tremors spread further than just stocks. Measures of inflation expectations jumped, intensifying fears of an economic slowdown and sending the dollar down against every currency of the Group of 10 nations. Investors rushed to the safety of government debt.

 

Thursday’s sell-off was an extraordinary moment in markets that, despite being prone to big swings, rarely react so strongly to an American president’s rollout of an economic policy.

 

Mr. Trump and his advisers shrugged off the market turmoil and predicted that stocks would eventually rebound.

 

“The markets are going to boom,” Mr. Trump said on Thursday. “The country is going to boom.”

 

The turmoil erupted after he announced on Wednesday a 10 percent base-line tariff on nearly all imports as well as additional taxes on goods from a host of specific countries. Those increased total tariffs on Chinese imports to 54 percent.

 

In a period when the markets had already been racked with uncertainty, Mr. Trump’s higher-than-expected tariffs presented a new challenge to investors’ and economists’ outlooks.

 

While some economists forecast that inflation from the tariffs will keep interest rates elevated, investors are betting that the shock to the economy will force the Federal Reserve to cut rates more rapidly.

 

“Trump’s tariff plan probably represents a shift for markets to quickly move from max uncertainty to max pessimism,” said Jeff Buchbinder, the chief equity strategist for LPL Financial.

 

The Trump administration modified its estimates of the tariffs that other countries impose on imports from the United States to account for what it deemed currency manipulation or even other taxes, with analysts questioning the analytical basis for doing so.

 

“They might as well have been in a room throwing darts at a dart board,” said Andrew Brenner, head of international fixed income at NatAlliance Securities.

 

“Trump is going to war with countries on this,” he said. “It’s ridiculous. It shows no comprehension as to what he is doing to other countries. And it is going to hurt the U.S.”

 

The market reaction clearly reflected the surprise that gripped Wall Street after the tariffs were announced.

 

“Never before has an hour of Presidential rhetoric cost so many people so much,” Lawrence Summers, who served as Treasury secretary under President Bill Clinton, wrote on social media late Wednesday.

 

Many major U.S. companies sank as soon as trading began on Thursday. As the day unfolded, some of the worst hit were technology stocks: Apple fell more than 9 percent, Amazon just less than 9 percent and Nvidia 7.7 percent. The tech-heavy Nasdaq Composite index fell 6 percent.

 

Shares in consumer brands also slumped as the Trump administration imposed steep tariffs on countries that are manufacturing hubs for shoes and clothing — for example, 46 percent on Vietnam and 32 percent on Indonesia. Nike’s shares dropped more than 14 percent.

 

The Russell 2000 index of smaller companies, which are more exposed to the health of the economy, fell 6.6 percent. The index dropped into a bear market, defined as a decline of 20 percent or more from the latest peak. The Russell is now almost 22 percent below its November peak.

 

In Europe, shares of Puma and Adidas tumbled alongside the stock of Pandora, a Danish jewelry company that makes its products in Thailand, which fell 10.7 percent.

 

The Stoxx Europe 600 fell 2.6 percent on Thursday, with most sectors, including banks, technology and consumer goods, in the red. Shares in Maersk, the Danish shipping giant, fell on fears of a global trade slowdown, while big European banks including HSBC, Commerzbank and Deutsche Bank also slumped.

 

In Asia, stocks tumbled for a wide variety of companies, including technology and semiconductor giants as well as major auto exporters. Shares of the Japanese automaker Toyota fell more than 5 percent on Thursday and South Korea’s Samsung Electronics close to 3 percent.

 

Investors flocked to government debt as a haven. The yield on the 10-year U.S. Treasury bond, which moves inversely to prices, fell to 4.04 percent, its lowest level since October. Mr. Trump has homed in on the 10-year yield as a measure of his success in lowering interest rates, but analysts warn that the recent drop reflected mounting worries for the economy.

 

The prospect of weaker global economic growth also weighed on commodities. Oil prices slumped even further after the Organization of the Petroleum Exporting Countries and its allies accelerated plans to increase supply. Brent crude oil, the international benchmark, dropped more than 6 percent, settling at $70.14 a barrel.

 

Stock markets globally have been choppy in recent weeks, as investors have been whipsawed by the Trump administration’s mixed messages on tariffs. Mr. Trump previously announced, delayed, changed and ultimately imposed tariffs on Canada, Mexico, steel, aluminum, cars and auto parts.

 

His advisers have asked for patience, while acknowledging that the tariffs could bring some short-term pain.

 

“Let Donald Trump run the global economy,” Commerce Secretary Howard Lutnick said Thursday morning on CNN. “He knows what he’s doing. He’s been talking about it for 35 years. You got to trust Donald Trump in the White House.”

 

The uncertainty around the tariff levels, and how long they might last, has made it difficult for investors, economists and policymakers to assess the potential ramifications for consumers, businesses and the broader economy.

 

The U.S. tariff rate on all imports is now around 22 percent, up from 2.5 percent in 2024, said Olu Sonola, the head of U.S. economic research at Fitch Ratings. That rate was last seen around 1910, he said.

 

Signs of worry have also been evident in the rapid rise in the price of gold, which has climbed alongside inflation worries. Investors sent it 19 percent higher in the first three months of the year, its biggest quarterly rise since 1986. On Thursday, gold was trading at more than $3,100 per troy ounce, while a market measure of inflation expectations one year from now shot up to around 3.5 percent.

 

Although many investors worry about the inflationary effect of tariffs, falling bond yields and a declining U.S. dollar suggest that most are more worried about waning economic growth.

 

It has led investors to suggest that the Federal Reserve might need to cut interest rates more aggressively. Traders had been betting on three more quarter-point cuts this year, but the chances of a fourth have increased, financial markets implied.

 

Some investors had hoped that the tariff announcement on Wednesday would cure some of the uncertainty in the financial markets. But few truly expected the news to be the end of Mr. Trump’s tariff talk and, with it, an end to the stock market volatility.

 

“Investors no longer see tariffs as a one-time event risk but an always-present risk,” said Mandy Xu, head of derivatives market intelligence at Cboe Global Markets, adding that the current expectation in the market is for volatility to persist.

 

Colby Smith contributed reporting.

 

Joe Rennison writes about financial markets, a beat that ranges from chronicling the vagaries of the stock market to explaining the often-inscrutable trading decisions of Wall Street insiders. More about Joe Rennison

 

Danielle Kaye is a business reporter and a 2024 David Carr Fellow, a program for journalists early in their careers. More about Danielle Kaye

 

River Akira Davis covers Japan, including its economy and businesses, and is based in Tokyo. More about River Akira Davis

 

Eshe Nelson is a reporter based in London, covering economics and business news for The New York Times. More about Eshe Nelson