NEW YORK: For a brief moment, it looked like Wall Street’s worst fears about President Donald Trump’s tariff plans were misplaced, and a relief rally started rippling through markets.
Then, as he stood in the White House Rose Garden on Wednesday, pointing to an oversized placard with the levies he’s slapping on imports from the United States’ trading partners, the reality set in.
He was significantly ratcheting up his trade war, just as he said he would. Stock futures tumbled, the US dollar slid, treasuries jumped and gold climbed to a new record as investors poured into havens.
“It’s definitely more aggressive than what people were expecting,” said Brad Bechtel, head of foreign exchange at Jefferies Financial Group Inc in New York.
“It’s a bigger doom loop for the rest of the world.”
Trump’s move to roll back global trade in a bid to bolster domestic production has shaken markets by threatening to upend the world economy, reignite inflation and stall growth in the United States.
Those fears have flared in markets repeatedly over the past several weeks, putting an abrupt end to the US equity rally and driving up measures of corporate credit risk on concerns about the fallout.
There were occasional rebounds when traders wagered that Trump may not follow through with reciprocal tariffs, which use tailored rates to retaliate against particular countries.
And soon after Trump’s press conference started, stock futures briefly rose as an initial, and erroneous, report circulated that he would limit tariffs to 10% across the board – far less than feared.
But the rally swiftly reversed as Trump said he will apply a minimum 10% tariff on all exporters to the – and slap additional duties on around 60 nations with the largest trade imbalances with the United States.
Futures on the S&P 500 were down around 2.8% while Nasdaq 100 contracts were 3.4% lower.
The immediate reaction showed that traders were expecting a significant impact from the move, which substantially raises levies on major trading partners like China and the European Union.
“There is clearly more downside ahead,” said Marko Papic, chief strategist at BCA Research, adding that the US stock market could eventually slide another 10%.
The tariffs have forced investors to game out a complicated economic impact, which will depend in part on whether other countries retaliate and how much US companies pass additional costs on to consumers.
Trump has said his decision is part of a longer-term plan to bring back the type of industrial jobs that have been shifted offshore, and he said the money raised will help chip away at the government’s budget deficit.
But by increasing the cost of imports, the White House has kindled concerns that elevated inflation will prevent the Federal Reserve from cutting interest rates sharply if the economy stumbles.
“This is negative for risk,” said Priya Misra, portfolio manager at JPMorgan Asset Management. “Overall what he detailed is stagflationary. And the uncertainty is not over.”
Bloomberg Markets Live Macro strategist Michael Ball said: “The higher-than-expected initial stated levels of ‘kind’ reciprocal tariffs on trading partners will keep uncertainty high and volatility levels elevated for some time.
“There are still many things that need to be determined, but the initial response to Trump’s tariff announcements indicates a more stagflationary outlook.”
The sweeping tariffs are Trump’s boldest move yet in a long-promised campaign to reshape global trade, with potentially disastrous consequences for other big economies.
But so far, the United States itself appears to be taking the brunt of the market impact.
China’s onshore benchmark CSI 300 was down just 0.3% after paring earlier losses, while Hong Kong’s Hang Seng Index was 1% lower after a similar rebound. Futures on European equities dropped 1.7%.
Only Japan could rival the roughly 3% decline in US stock futures.
But the country’s currency jumped as traders flocked to a familiar safe haven.
The moves underscored a key risk confronting investors weighing up the impact of tariffs: that the United States, which largely shaped the current system of global trade, might be one of the biggest victims of its demise.
Writing before the announcement, a bevy of Wall Street firms said they expected more pain after the US equity market notched its worst quarter since 2022.
Goldman Sachs Group Inc, Bank of America Corp and others warned that the tariffs, no matter the specifics, would deepen the selloff in equities.
Three of Wall Street’s most-reliable bullish sell-side strategists have also cut forecasts for the S&P 500 this year, though they still see the index ending 2025 higher than it is now.” — Bloomberg
