A tariff offensive Donald Trump billed as key to America’s long-term prosperity went down badly in markets late Wednesday, setting off declines of 2% or more in equity benchmarks that had rallied for three days on hopes the program would be less draconian.
A $577 billion exchange-traded fund tracking the S&P 500 (SPY) fell about 2.5% after the close of regular trading, wiping out an initial rally. Bonds climbed. Trump said Wednesday he will apply a minimum 10% tariff on all exporters to the US and slap additional duties on around 60 nations with the largest trade imbalances with the US. China will face a 34% rate, while the European Union will have a 20% levy, and Japan is seeing a 24% tariff.
The late-session swoon halted three days of gains in the S&P 500 as hopes were dashed the tariff program would be a lighter touch. Traders across asset classes now must brace for what promises to be a grueling stretch of trade negotiations, against an economic backdrop that has shown signs of softening as companies and consumers adjust to Trump’s offensive.
“Eye-watering tariffs on a country-by-country basis scream ‘negotiation tactic,’ which will keep markets on edge for the foreseeable future,” said Adam Hetts at Janus Henderson Investors.
To Steve Chiavarone at Federated Hermes, if Wednesday’s announcement marks the most draconian levels of tariffs, and the news flow from here is about how countries are negotiating reductions to these rates, that could be good for markets.
“This may create enough of a selloff over the next day or so that it creates a buying opportunity,” he said. “Worst case scenario today would’ve been a low rate with threats of escalation. I’d rather, at this point, have higher rates with the potential to deescalate.”
The S&P 500 rose 0.7% on Wednesday. The Nasdaq 100 added 0.7%. The Dow Jones Industrial Average gained 0.6%.
The US 10-year yield retreated four basis points to 4.13%. The dollar fell 0.2%.
“That should slow trade and raise prices, squeezing profit margins,” said Michael O’Rourke at JonesTrading Institutional Services. “This will further slow a decelerating economy as it creates friction and distortion in global trade. I think we need to expect retaliation, which will likely lead to further escalation.”
“US import tariffs threaten to intensify the economic slowing, as well as add to inflationary pressures,” said Todd Jablonski at Principal Asset Management. “However, the performance of the Magnificent Seven suggests markets may have already priced in these impacts. The Fed could act as a tailwind for markets if rate cuts are implemented in response to economic softness.”
To Chris Zaccarelli at Northlight Asset Management, markets are going to continue to struggle with the speed at which tariff details change as well as the ultimate result of the tariffs themselves.
“The silver lining for investors could be that this is only a starting point for negotiations with other countries and ultimately tariff rates will come down across the board – but for now, traders are shooting first and asking questions later,” he said.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)