NEW YORK 鈥� Wall Street shuddered, and a level of shock unseen since COVID-19鈥檚 outbreak tore through financial markets worldwide Thursday on worries about the damage President Donald Trump鈥檚 newest set of tariffs could do to economies across continents, including his own.
The S&P 500 sank 4.8%, more than in major markets across Asia and Europe, for its worst day since the pandemic crashed the economy in 2020. The Dow Jones Industrial Average dropped 1,679 points, or 4%, and the Nasdaq composite tumbled 6%.
Little was spared in financial markets as fear flared about the potentially toxic mix of weakening economic growth and higher inflation that tariffs can create.
Everything from crude oil to Big Tech stocks to the value of the U.S. dollar against other currencies fell. Even gold, which hit records recently as investors sought something safer, pulled lower.
Some of the worst hits walloped smaller U.S. companies, and the Russell 2000 index of smaller stocks dropped 6.6% to pull more than 20% below its record.
Investors worldwide knew Trump was going to announce a sweeping set of tariffs late Wednesday, and fears surrounding it already pulled Wall Street鈥檚 main measure of health, the S&P 500 index, 10% below its all-time high.
Trump still managed to surprise them with 鈥渢he worst case scenario for tariffs,鈥� according to Mary Ann Bartels, chief investment officer at Sanctuary Wealth.
Trump announced a minimum tariff of 10% on imports, with the tax rate running much higher on products from certain countries like China and those from the European Union. It's "plausible" the tariffs altogether, which would rival levels unseen in roughly a century, could knock down U.S. economic growth by 2 percentage points this year and raise inflation close to 5%, according to investment bank UBS.
Such a hit would be so big that it "makes one's rational mind regard the possibility of them sticking as low," according to Bhanu Baweja and other strategists at UBS.
Wall Street had long assumed Trump would use tariffs merely as a tool for negotiations with other countries, rather than as a long-term policy. But Wednesday's announcement may suggest Trump sees tariffs more as helping to solve an ideological goal than as an opening bet in a poker game. Trump on Wednesday talked about wresting manufacturing jobs back to the United States, a process that could take years.
Stock prices might need to fall much more than 10% from their all-time high to reflect the recession that could follow, along with the hit to profits that U.S. companies could take. The S&P 500 is now down about 11% from its record set in February.
"Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade," said Sean Sun, portfolio manager at Thornburg Investment Management, though he sees Trump's announcement Wednesday as more of an opening move than an endpoint for policy.
Trump offered an upbeat reaction on Thursday after he was asked about the stock market drop as he left the White House to fly to his Florida golf club.
"I think it's going very well," he said. "We have an operation, like when a patient gets operated on and it's a big thing. I said this would exactly be the way it is."
Tariff push
Trump's expansive new tariffs upend a decades-long global trend of lower trade barriers and is likely, economists say, to raise prices for Americans by thousands of dollars each year while sharply slowing the U.S. economy.
The White House is gambling that other countries will also suffer enough pain that they will open up their economies to more American exports, leading to negotiations that would reduce the tariffs imposed Wednesday.
Or, the White House hopes, more companies 鈥� both American and foreign 鈥� will reverse their moves toward global supply chains and bring more production to the United States to avoid higher import taxes.
But a key question for the Trump administration will be how Americans react to the tariffs. If prices rise noticeably and jobs are lost, voters could turn against the duties and make it harder to keep them in place for the length of time needed to encourage companies to return to the U.S.
The Yale Budget Lab estimates all the Trump administration's tariffs would cost the average household $3,800 in higher prices this year. The figure includes the impact of the 10% universal tariff announced Wednesday, plus much higher tariffs on about 60 countries, as well as previous import taxes on steel, aluminum and cars.
Inflation could top 4% this year, from 2.8% currently, while the economy may barely grow, according to estimates by Nationwide Financial.
The average U.S. tariff could rise to almost 25% when the tariffs are fully implemented Wednesday, economists estimate, higher than it has been in more than a century and higher than the 1930 Smoot-Hawley tariffs that are widely blamed for worsening the Great Recession. Economists note that the United States engages in much more trade now than it did then.
"The president just announced the de facto separation of the U.S. economy from the global economy," said Mary Lovely, senior fellow at the Peterson Institute for International Relations. "The stage is set for higher prices and slower growth over the long term."
Commerce Secretary Howard Lutnick, in an interview on CNBC Thursday, claimed the policies will help open markets overseas for U.S. exports.
"I expect most countries to start to really examine their trade policy towards the United States of America, and stop picking on us," he said. "This is the reordering of fair trade."
But a former trade official from Trump's first term, speaking to reporters on condition of anonymity Thursday, suggested that Americans, including those who voted for Trump, may have difficulty accepting the stiff duties.
Americans "have never faced tariffs like this," the former official said. "The downstream impact on clothing and shoe stores, it's going to be pretty significant. So we'll have to see how the Trump voters view this聽鈥� and how long their support for these policies goes."
The tariffs will hit many Asian countries particularly hard, with duties on Vietnamese imports rising to 46% and on goods from Indonesia to 32%. Tariffs on some Chinese imports will now be as high as 79%. Those three countries are the top sources of U.S. shoe imports, with Nike making about half its shoes last year and one-third of its clothes in Vietnam.
The Yale Budget Lab estimates all Trump's tariffs this year will push clothing prices 17% higher.
On Thursday, the Home Furnishings Association, which represents more than 13,000 U.S. furniture stores, predicted that the tariffs will increase prices between 10% and 46%. Vietnam and China are the top furniture exporters to the U.S.