By Samuel Shen and Saqib Iqbal Ahmed
NEW YORK/SHANGHAI (Reuters) – President Donald Trump’s new tariffs sent shockwaves through markets on Thursday with the dollar and U.S. stocks among the hardest hit on fears a broadening trade war will unleash a recession.
A combination of a 10% baseline levy and higher duties on a number of other trading partners reverses decades of liberalisation that shaped the global trade order.
“This is the worst-case scenario,” said Jay Hatfield, CEO at Infrastructure Capital Advisors.
“Enough to potentially send the U.S. into a recession,” he added, echoing nervous market sentiment as the aggressive duties crystallized investor fears that have swirled during Trump’s second term.
A telling fall in the dollar, a 3.4% 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 U.S. efforts to reduce inflation, so it’s possible the U.S. 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% tariffs go into effect on April 5 and the higher reciprocal rates on April 9.
Tariffs of 25% on vehicle imports took effect at midnight and the new levies include a 34% tariff on imports from China, 46% on Vietnam, 24% on Japan and 20% on Europe.
The U.S. dollar index sank to a near six-month low on Thursday, falling most against safe havens such as the yen and franc. [FRX/]
An initial 3% slide in S&P 500 futures and falls of nearly 6% and 7% 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 M. 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% of revenues from outside the U.S. 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 U.S. 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 U.S. stocks, since in mid-March the S&P 500 confirmed a correction, a drop of 10% from a recent high and the mood is nervous.
The index finished Wednesday’s regular trading session 8% 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.”
(Additional reporting by Saqib Iqbal Ahmed, Nupur Anand, Laura Matthews, Summer Zhen, Suzanne McGee, Carolina Mandl, Tatiana Bautzer; Graphics by Pasit Kongkunakornkul; Writing by Tom Westbrook; Editing by Shri Navaratnam)
