NEW YORK (AP) — Financial markets around the world were reeling on Thursday following the latest and most severe wave of tariffs from U.S. President Donald Trump, and the U.S. stock market could be taking the brunt of it.
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The S&P 500 was falling by 4% in morning trading, worse than the drops in other major stock markets. The Dow Jones Industrial Average was down 1,520 points, or 3.6%, at 10:10 a.m. Eastern time, and the Nasdaq Composite was 4.0% lower.
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Little was saved as fear spread worldwide about the potentially toxic combination of higher inflation and a weakening of economic growth that tariffs can create.
Everything, from crude oil to shares of big tech companies and the value of the US dollar against other currencies, dropped. Even gold, which has recently hit records as investors sought something safer to hold, fell. Some of the worst hits affected smaller US companies, and the Russell 2000 index for small businesses dropped more than 5% in what is called a “bear market” after losing over 20% from its peak.
Investors around the world knew that Trump was going to announce a broad set of tariffs on Wednesday afternoon, and fears about it had already caused the S&P 500 to fall 10% below its all-time high last month. But Trump still managed to surprise them with “the worst-case scenario for tariffs,” according to Mary Ann Bartels, Chief Investment Officer at Sanctuary Wealth.
Trump announced a minimum tariff of 10% on imports, with a much higher tax rate on products from certain countries such as China and those from the European Union. It is “plausible” that the tariffs as a whole, which would rival levels not seen in about a century, could reduce the economic growth of the United States by two percentage points this year and increase inflation to around 5%, according to UBS.
A blow like this would be so terrifying that “it makes the rational mind consider the possibility of staying low,” according to Bhanu Baweja and other UBS strategists.
For a long time, Wall Street had assumed that Trump would use tariffs simply as a tool for negotiations with other countries, rather than as a long-term policy. However, Wednesday’s announcement may suggest that Trump sees tariffs more as a means to achieve an ideological goal - such as bringing manufacturing jobs back to the United States - rather than just as an initial move in a poker game.
If Trump continues with his tariffs, stock prices may need to fall much more than 10% from their all-time high to reflect the global recession that could follow, along with the hit to earnings that US companies could suffer. The S&P 500 has now dropped about 11% from its record set in February.
“The markets may be reacting less than expected, especially if these rates turn out to be definitive, given the potential for collateral effects on consumption and global trade,” said Sean Sun, portfolio manager at Thornburg Investment Management, although he sees Trump’s announcement on Wednesday more as an initial move than as a final point for policy.
A wildcard is that the Federal Reserve could cut interest rates to support the economy. That is what it had been doing at the end of last year before pausing in 2025. Lower interest rates help facilitate American businesses and households to borrow and spend.
Treasury bond yields fell partly due to increased expectations of upcoming rate cuts, along with general concerns about the health of the US economy. The yield on the 10-year Treasury bond dropped to 4.01% from Wednesday’s 4.20% and down from around 4.80% in January. That’s a significant move for the bond market.
In foreign stock markets, indices plummeted worldwide. France’s CAC 40 dropped by 3%, and Germany’s DAX lost 2.3% in Europe.
The Nikkei 225 in Japan fell by 2.8%, the Hang Seng in Hong Kong lost 1.5%, and the Kospi in South Korea dropped by 0.8%.