UPDATE: Stocks see worst day in five years after tariffs announcement

Wall Street underwent a level of shock Thursday unseen since COVID-19’s outbreak tore through financial markets worldwide on worries about the impact President Donald Trump’s newest set of tariffs could have on 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%, in its fifth-worst drop in index history. The Nasdaq composite tumbled 6% for its worst day since 2020.

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 worldwide knew Trump was going to announce a sweeping set of tariffs late Wednesday, 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.

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.

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.

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 on Wednesday 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 upward on inflation. And worries are already worsening about that because of tariffs, with U.S. households in particular bracing for sharp increases to their bills.

The U.S. economy at the moment is still growing, of course. A report on 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.

All told, the S&P 500 fell. 274.45 points to 5,396.52 The Dow Jones Industrial Average sank 1,679.39 to 40,545.93, and the Nasdaq composite tumbled 1,050.44 to 16,550.61.

In stock markets abroad, indexes fell sharply worldwide. France’s CAC 40 dropped 3.3%, and Germany’s DAX lost 3% in Europe.

Japan’s Nikkei 225 sank 2.8%, Hong Kong’s Hang Seng lost 1.5% and South Korea’s Kospi dropped 0.8%.

Earlier story (1:09 p.m.): 

President Donald Trump’s trade war is sending shock waves through financial markets and rattling business owners around the world as they try to make sense of new tariffs that are taking hold as early as Thursday.

The onslaught of new tariffs sent U.S. stocks tumbling Thursday morning, with the S&P 500 falling more than 4.3 percent and the Nasdaq down 5.6 percent, The Dow Jones Industrial Average, meanwhile, dropped 1,500 points, wiping out 3.7 percent of its value. Major indexes in Asia and Europe also took a fall, although some recovered their losses during their trading day.

The rollout of new tariffs, which economists have warned could cost U.S. consumers and businesses billions of dollars this year, threatens to radically alter the economic outlook. Economists on Wall Street and beyond are now warning that a recession is suddenly becoming much more likely this year.

“This is a game changer, not only for the U.S. economy but for the global economy,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “Many countries will likely end up in a recession. You can throw most forecasts out the door if this tariff rate stays on for an extended period of time.”

The overall U.S. tariff rate, which was 2.5 percent last year, will soon balloon to roughly 22 percent, a rate last seen more than a century ago, he said.

On Wednesday, Trump introduced a 10 percent tariff on all imports, which will take effect Saturday, and additional taxes that will bring the levies up to 50 percent on goods from certain countries beginning April 9. A separate 25 percent tariff on imported vehicles went into effect Thursday, starting at midnight.

Treasury Secretary Scott Bessent warned countries not to retaliate in several media interviews, telling CNN on Wednesday that “doing anything rash would be unwise.”

However, several promised to respond, including China and the European Union. Most governments held back on specific countermeasures, vowing to react with “cool and calm heads,” in the words of British Prime Minister Keir Starmer. But beneath the diplomatic restraint were anger and fears of spreading economic chaos.

“This decision, which is so unprincipled, so abrupt, so profound in its impact, calls into question what kind of partner the U.S. will be,” said Susannah Patton, the director of the Southeast Asia Program at the Lowy Institute, an Australian think tank. “It will play into China’s narrative that the U.S. is an unreliable, distant partner that can come and go.”

The size of the tariffs stunned U.S. allies in particular.

“The administration’s tariffs have no basis in logic, and they go against the basis of our two nations’ partnership,” said Australian Prime Minister Anthony Albanese, whose country got off relatively lightly with a 10 percent blanket duty. “This is not the act of a friend.”

The European Union, which was hit with a 20 percent blanket tariff, is ready to respond if talks with Washington fail, said the head of the E.U. executive branch, European Commission President Ursula von der Leyen.

“There seems to be no order in the disorder. No clear path through the complexity and chaos,” she said in a statement describing the tariffs as a “major blow.”

The 27-nation bloc is finalizing its first round of retaliation to U.S. steel tariffs and is “now preparing for further countermeasures to protect our interests and our businesses if negotiations fail,” she said.

The tariffs are particularly onerous on China, the world’s second-biggest economy and the target of much of Trump’s ire as it ran a nearly $1 trillion trade surplus with the United States last year.

The new tariff of 34 percent on Chinese goods comes on top of the 20 percent levy already imposed as Trump accused Beijing of not doing enough to stop the flow of fentanyl and its precursors into the United States. It is also in addition to the existing tariffs on goods, including some appliances, machinery and clothing, that were already as high as 45 percent.

Uncertainty is creating chaos for business owners, including many that have spent years expanding manufacturing operations in countries such as Mexico, Vietnam and India, as part of an effort to work around the tariffs Trump placed on Chinese goods during his first term. Now imports from those three countries – along with dozens others – will soon cost much more.

On Wednesday evening, small-business owner Anjali Bhargava was trying to tally up the higher costs she will face on ingredients for the turmeric and chai blends she sells at retailers such as Whole Foods. The fallout would be swift and vast, she said: a 26 percent price hike on tea from India, an extra 36 percent for turmeric from Thailand and an additional 46 percent on cinnamon and ginger from Vietnam.

“I’m honestly stunned,” said Bhargava, 48, who founded her business in 2014. “I may have to just use the ingredients I’ve been able to buy and throw in the towel. But then what? [I’ve] taken on so much debt to keep things going through the pandemic and to grow.”

(Whole Foods is owned by Amazon, whose founder Jeff Bezos owns The Washington Post.)

But some industries applauded the administration’s announcement Wednesday.

The American Petroleum Institute thanked Trump for excluding oil and natural gas from the new tariffs. The American Iron and Steel Institute, which represents North American steel producers, said Trump was “standing up for American workers.”

But industry groups representing restaurants and the food industry said tariffs would lead to higher prices and more stress on businesses. And some Democrats accused Trump of using tariffs as a political weapon that would devastate the economy.

Major labor unions said tariffs can be effective but suggested the administration still isn’t doing enough for workers. The president of United Steelworkers International said import taxes must be coupled with policies to increase domestic production and jobs, and the AFL-CIO president criticized the administration for separately attacking trade union workers’ rights.

Just how disruptive the sweeping duties are for allies will depend on enforcement and potential exemptions, analysts said. The White House listed carve-outs for industries like semiconductors – crucial for artificial intelligence development and high-performance computing – and pharmaceuticals that may provide relief for partners such as Taiwan and South Korea.

Despite the exemption, semiconductor stocks saw notable losses early, including declines of more than 5 percent for AI and 3D-graphics chipmaker Nvidia and more than 7 percent for Taiwan Semiconductor Manufacturing Co., the world’s largest contract manufacturer of chips.

Companies that manufacture many of their products overseas were also hard hit, such as Nike, which has factories in Vietnam and other parts of Asia. Shares of the shoemaker were down more than 10 percent. The White House said Wednesday that goods from Vietnam will now be subject to a 46 percent tariff.

Stock in discount variety chain Dollar Tree, which imports many of its items from abroad, also fell more than 10 percent. Retail giant Target was down 9 percent.