Cliff Notes

Market Reaction to Tariffs: Asian markets witnessed significant declines following a drastic sell-off on Wall Street, driven by the announcement of new tariffs by the Trump administration. The S&P 500 experienced its worst drop since the onset of the COVID-19 pandemic, plunging 4.8%, while the Dow Jones and Nasdaq also fell sharply.
Economic Impact Predicted: Analysts at UBS forecast that the newly imposed tariffs, particularly a minimum rate of 10% on imports, could potentially lower U.S. economic growth by 2 percentage points and raise inflation close to 5%. This alarming prediction raises concerns over a possible recession induced by a combination of weakened growth and increased inflation.
Investor Sentiment and Federal Reserve Response: There is an emerging sense of anxiety among investors regarding the long-term consequences of Trump’s tariffs, prompting speculation about the Federal Reserve potentially cutting interest rates to support the economy. However, fears of rising inflation tied to the tariffs complicate the Fed’s decision-making process.

Asian stocks slid after Wall Street surrendered to a hit by Trump’s tariffs

A screen displays financial news as traders work on the floor at the New York Stock Exchange in New York, Thursday, April 3, 2025. (AP Photo/Seth Wenig)

HONG KONG (AP) — Asian markets retreated Friday after Wall Street shuddered with a level of shock unseen since the COVID-19 impact tore on Trump’s latest set of tariffs’ damage on the world’s economy.

Futures for U.S. stocks and the oil prices declined.

Tokyo’s Nikkei 225 lost 2.6% to 33,818.18, and Korea’s Kospi fell 0.8% to 2,467.14 after the two countries pivoted to negotiating lower tariffs with Trump’s administration.

Australia’s S&P/ASX 200 dropped 1.9% to 7,713.60. Chinese markets were closed for a holiday.

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 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.

Trump has previously said tariffs could cause “a little disturbance” in the economy and markets, and on Thursday he again downplayed the impact as he left the White House to fly to Florida.

“The markets are going to boom, the stock is going to boom and the country is going to boom,” Trump said.

The S&P 500 sank 4.8% to 5,396.52 Thursday, 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 4% to 40,545.93, and the Nasdaq composite tumbled 6% to 16,550.61.

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 to own, 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 knew Trump was going to announce sweeping new tariffs, and fears surrounding it had already pulled Wall Street’s main measure of health, the S&P 500 index, 10% below its all-time high. 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.

‘Wall Street assumed tariffs were tool to negotiate’

Wall Street had long assumed Trump would use tariffs merely as a tool for negotiations 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 talked about wresting manufacturing jobs back to the United States, which could take years.

If Trump follows through on his tariffs, stock prices may need to fall much more than 10% from their all-time high in order 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 11.8% 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 as more of an opening move than an endpoint for policy.

Trump offered an upbeat reaction after he was asked about the market’s drop as he left the White House to fly to his Florida golf club on Thursday.

“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.”

One wild card is that the Federal Reserve could cut interest rates in order to support the economy. That’s what it had been doing late last year before pausing in 2025. Lower interest rates help by making it easier for U.S. companies and households to borrow and spend.

Yields on Treasurys tumbled in part on rising expectations for coming cuts to rates, along with general fear about the health of the U.S. economy. The yield on the 10-year Treasury fell to 4.04% from 4.20% late Wednesday and from roughly 4.80% in January. That’s a huge move for the bond market.

The Fed may have less freedom to move than it would like, though. While lower rates can goose the economy, they can also push up inflation. And worries are worsening about that because of tariffs, with U.S. households in particular bracing for sharp increases to their bills.

‘US job market the linchpin’

The U.S. economy at the moment is still growing, of course. A report Thursday said fewer U.S. workers applied for unemployment benefits last week. Economist had been expecting to see an uptick in joblessness, and a relatively solid job market has been the linchpin keeping the economy out of recession.

A separate report said activity for U.S. transportation, finance and other businesses in the services industry grew last month. But the growth was weaker than expected, and businesses gave a mixed picture of how they see conditions.

Worries about a potentially stagnating economy and high inflation knocked down all kinds of stocks, leading to drops for four out of every five that make up the S&P 500.

Best Buy fell 17.8% because the electronics that it sells are made all over the world. United Airlines lost 15.6% because customers worried about the global economy may not fly as much for business or feel comfortable enough to take vacations. Target tumbled 10.9% amid worries that its customers, already squeezed by still-high inflation, may be under even more stress.

In other trading early Friday, the U.S. dollar rose to 146.05 from 145.93 Japanese yen. The euro gained to $1.1068 from $1.1052.