President Donald Trump’s rollout of sweeping tariffs on virtually all U.S. imports slammed into markets Thursday as investors issued an emphatic rebuke of his effort to reorder global trade.
The broad-based S&P 500 index plunged nearly 5% — a roughly $2 trillion wipeout — for its biggest one-day drop since June 2020, amid the depths of the Covid-19 pandemic. The Dow Jones Industrial Average likewise had its worst day since the same month five years ago, closing 4% lower. The tech-heavy Nasdaq plummeted 6%, its biggest decline since March 2020.
Retail stocks were some of the hardest-hit Thursday, as Trump’s tariffs on manufacturing powerhouses like China could climb as high as 54%. Nike shares fell 14.5%, while Lululemon shares were off 10%. Ralph Lauren lost 16%.
Oil drillers also took massive losses, led by Valero Energy, whose shares sank 15%. The price of crude tanked nearly 7% on fears of a slowdown in global growth.
Smaller business, represented by the Russell 2000 Index, weren’t spared, with the benchmark closing down 6.6% Thursday. It has lost more than 20% since it peaked in November — officially a bear market.
The rout is a harsh early verdict on Trump’s historic tariff plan. Even before Wednesday’s rollout, his whipsawing trade policies had already unsteadied investors, corporate executives, consumers and retirement savers.
Now, markets are broadcasting profound pessimism about the policies of a president who regained office promising immediate improvements to a flawed but sturdy economy. As the outlook darkens, analysts are increasingly raising alarms about the potential for a recession.
For decades, American shoppers have been the “consumer of last resort” for world markets. Under this implicit arrangement, other countries make products at relatively low cost that U.S. consumers buy — producing the extensive trade deficits Trump has long bemoaned.
As Trump emphasized Wednesday, that setup has cost the nation manufacturing jobs — though technological advancements have also played a role. Some parts of the country have managed the transition to a service-driven economy better than others, and it took decades for median inflation-adjusted earnings to eclipse their late-1970s levels. Indeed, real median earnings for male workers only just returned to those levels in the past quarter.
The problem, many analysts warn, is that the genie can’t be put back in the bottle without squeezing U.S. wages. When Trump displayed a chart Wednesday showing how much other countries are “charging” the United States, he was really describing the extent of the country’s trade deficits with each of them.
The United States has a wide deficit with Cambodia, for instance, but mainstream economists wouldn’t argue it’s “ripping off” Americans. Instead, the gap merely reflects that the United States buys more products made in Cambodia than it sells to it.
“A bilateral trade deficit is not a strong indicator of a trade barrier,” said Felix Tintelnot, an economist at Duke University.
“You spend your money at Trader Joe’s, but they don’t buy anything from you. Your employer pays your salary, but you typically don’t purchase anything from them,” he said. “The existence of bilateral deficits is perfectly normal in an integrated economy.”
Zeroing out those trade imbalances would require the labor-intensive, low-wage work now being done in developing countries like Vietnam to be performed in the United States, instead — a reversal that likely to crimp American workers’ earnings and spending power.
“The tariffs will make the U.S. poorer and invited retaliation from our allies and trading partners,” said Erica York, vice president of federal tax policy at the Tax Foundation, a nonprofit think tank. “This is a campaign promise that should have gone unfulfilled.”
Other analysts responded no less negatively to the tariff rollout, with reactions such as “worse than the worst-case scenario” and “a perfect recipe for stagflation” and warnings that “many countries will likely end up in a recession.”
Overnight, the 25% tariffs on auto imports Trump announced last week also took effect. Levies of 25% on foreign-made auto parts will be implemented no later than May 3, the administration has said, meaning any car sold in the United States will be vulnerable to tariffs by this time next month.
Markets had already been battered heading into this week. The S&P 500 and the Nasdaq just recorded their worst quarter in years, largely because of growing uncertainty around the impact of Trump’s trade policies.
U.S. stocks weren’t the only ones to suffer deep sell-offs Thursday, even though some overseas markets rallied recently over shifts in American trade and foreign policy. Japan’s main stock index and Europe’s Stoxx 600 each closed 2.7% lower Thursday. The U.K.’s FTSE 100 declined around 1.7%, and German, French and Italian markets tumbled around 3%.
