Markets reel as US tariff salvo stokes recession risk
/ Our Today
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NEW YORK/SHANGHAI (Reuters)
President Donald Trump’s new tariffs sent shockwaves through markets on Thursday (April 3) with the dollar and US stocks among the hardest hit on fears a broadening trade war will unleash a recession.
A combination of a 10 per cent baseline levy and higher duties on a number of other trading partners reverses decades of liberalisation that shaped the global trade order.
Wall Street’s major indexes plunged; at 09:30 am the Dow Jones Industrial Average fell 1,111.20 points, or 2.66 per cent, to 41,103.63, the S&P 500 lost 188.27 points, or 3.32 per cent, to 5,482.70 and the Nasdaq Composite lost 789.63 points, or 4.50 per cent, to 16,811.42.
“This is the worst-case scenario,” said Jay Hatfield, CEO at Infrastructure Capital Advisors.
“Enough to potentially send the US into a recession,” he added, echoing nervous market sentiment as the aggressive duties crystallised investor fears that have swirled during Trump’s second term.
A telling fall in the dollar, a 3.4 per cent slide in Nasdaq futures and the biggest jump in the bond market for nine months all pointed to deep discomfort about the world’s biggest consumer market disappearing behind a tariff wall.
“The higher tariffs will dent US efforts to reduce inflation, so it’s possible the US will witness stagflation,” said Wang Zhou, partner at Zhouzhu Investment in Shanghai.
“Investors are voting with their feet.”
Fed funds futures rallied as investors priced in a higher chance of the Federal Reserve cutting interest rates.
The base 10 per cent tariffs go into effect on April 5 and the higher reciprocal rates on April 9.
Tariffs of 25 per cent on vehicle imports took effect at midnight and the new levies include a 34 per cent tariff on imports from China, 46 per cent on Vietnam, 24 per cent on Japan and 20 per cent on Europe.
The US dollar index sank to a near six-month low on Thursday, falling most against safe havens such as the yen and franc.
An initial three per cent slide in S&P 500 futures and respective falls of nearly six and seven per cent for Nvidia and Apple respectively were deeper than market drops in Hong Kong and Tokyo and declines in early trade in European financial centres.
“These tariffs will surely push consumers in China and other countries to consume more of their own products or other brands,” said Eric Clark, a portfolio manager at Alpha Brands in California.
“(Trump has) decided to take an isolationist approach, when the S&P 500 companies have more than 40 per cent of revenues from outside the US This raises the risk of recession here even higher.”
‘NO ONE LIKES WHAT THEY SEE’
In his speech at the White House Rose Garden, Trump cast the levies in terms of fairness, arguing that the “reciprocal” tariffs were a response to duties and other non-tariff barriers put on US goods.
“In many cases, the friend is worse than the foe in terms of trade,” Trump said, calling it a declaration of independence.
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.
To be sure, some investors saw the Rose Garden speech as a starting point for negotiation and in markets such as China, which had braced for tariffs, and where most revenue is earned locally, selling in stocks and the currency was more contained.
All the same, the policy volatility was starting to feed in to markets’ gloom.
“It’s created bad sentiment on the future, which slows down things,” said John Luke Tyner, fixed income analyst at Aptus Capital Advisors in Fairhope, Alabama.
“You’ve seen slowdowns in projects, capital projects, CEOs’ commentary on markets and the economy.”
That comes at a particularly delicate moment for US stocks, since in mid-March the S&P 500 confirmed a correction, a drop of 10 per cent from a recent high and the mood is nervous.
The index finished Wednesday’s regular trading session eight per cent 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.”
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