The US stock market tumbled deeply into the red on Thursday as the White House clarified its plan for a massive 145% tariff on China, escalating a trade war.
The Dow, after rising nearly 3,000 points Wednesday, had a volatile day in the red on Thursday. The blue-chip index fell 1,015 points, or 2.5%, pulling back after tumbling as much as 2,100 points midday.
The S&P 500 fell 3.46% and the Nasdaq Composite slid 4.31%. The S&P 500 was coming off its best day since 2008, and the Nasdaq on Wednesday posted its second-best daily gains in history.
The stock market, fresh off its third-best day in modern history, is sinking back into reality: Although President Donald Trump paused most of his “reciprocal” tariffs, his other massive import taxes have already inflicted significant damage, and the economy won’t easily recover from the fallout.
After taking a victory lap Wednesday, the president on Thursday acknowledged some “transition problems” could be expected.
“A big day yesterday. There will always be transition difficulty — but in history, it was the biggest day in history, the markets. So we’re very, very happy with the way the country is running. We’re trying to get the world to treat us fairly,” Trump said in the Cabinet Room.
The US dollar index, which measures the dollar’s strength against six foreign currencies, tumbled 1.7% Thursday, hitting its lowest level since early October. The dollar has broadly weakened this year, a sign of investors’ concern about the health and stability of the US economy.
Gold prices hit a fresh record high above $3,170 a troy ounce on Thursday. The yellow metal is considered a safe haven amid economic and geopolitical turmoil and just posted its best quarter since 1986.
Stocks are volatile after short-lived relief rally
Traders were elated that Trump temporarily rescinded his so-called reciprocal tariffs, which aren’t really reciprocal, for 90 days. Those tariffs placed hefty levies between 11% and 50% on dozens of countries.
Stock futures on Thursday had also responded somewhat positively to the European Union’s announcement that it would temporarily pause its retaliatory tariffs on the United States in hopes of a negotiated trade agreement after Trump’s U-turn. Trump and Treasury Secretary Scott Bessent said more than 70 countries were lining up to negotiate trade deals with the United States to get out from under the tariffs, and the Trump administration wanted to provide time to strike deals.
But even after Trump’s about-face, the reality remains stark: Economists said the economic damage is done, and many say there is still an elevated risk of a US and global recession. Stocks are still well below where they were before Trump unveiled his “Liberation Day” tariffs last week, and those large stock market losses, existing tariffs and high degree of uncertainty about American trade policy are enough to sink the economy, they say.
Trump’s universal 10% tariff that went into effect Saturday remains in place, as do 25% tariffs on auto imports, 25% tariffs on steel and aluminum and 25% tariffs on some goods from Canada and Mexico. Trump also pledged to go forward with additional tariffs on pharmaceuticals, lumber, semiconductors and copper.
Goldman Sachs said Wednesday after Trump’s partial detente that recession chances in the United States were still a coin flip. JPMorgan Wednesday evening said the bank would not alter its recession forecasts, still seeing a 60% chance of a US and global recession even after Trump’s “positive” decision to unwind his “draconian” country-specific tariffs.
“My sense here is that the (US) economy is still likely to fall into recession, given the level of simultaneous shocks that it’s absorbed,” Joe Brusuelas, chief economist of consulting firm RSM, told CNN. “All this does is postpone temporarily what will likely be a series of punitive import taxes put on US trade allies.”
The CBOE Volatility Index, or Wall Street’s fear gauge, surged 40% Thursday. The VIX briefly traded above 50 points midday — a rare level associated with extreme volatility.
New data on Thursday showed that inflation in the US slowed sharply in March. While that is usually welcome news for investors, the focus on Wall Street is firmly on tariffs and the outlook for the economy going forward.
“Thursday’s [data] is for March, which is backward looking and doesn’t tell the market much about how the recent tariffs, albeit many of them on pause, are affecting consumer prices,” said Skyler Weinand, chief investment officer at Regan Capital.
China’s not backing down
Meanwhile, Trump isn’t backing off his alarming trade war with China — in fact, it’s getting worse. Goods coming from China to the United States are now subject to at least a 145% tariff, the White House clarified Thursday. The 125% “reciprocal” tariff Trump announced on China on Wednesday comes on top of the 20% tariff that had already been in place. It hadn’t been clear if the tariffs were additive.
Stocks immediately dipped lower after news outlets began reporting the clarification around 11 a.m. ET.
Also on Thursday, Beijing’s retaliatory 84% tariffs on US imports to China went into effect.
China says it remains willing to negotiate with the United States, but a spokesperson for the Chinese Commerce Ministry also reiterated Thursday that China will not back down if Trump chooses to further escalate the trade war.
“The door to talks is open, but dialogue must be conducted on the basis of mutual respect and equality,” the spokesperson said. “We hope the US will meet China halfway, and work toward resolving differences through dialogue and consultation.”
“If the US chooses confrontation, China will respond in kind. Pressure, threats and blackmail are not the right ways to deal with China,” the spokesperson said.
Signs of stress
Some billionaire investors, who have been pressuring Trump to back off his punishing tariffs, were elated that the president hit pause.
“There are better and worse ways of handling our problems with unsustainable debt and imbalances, and President Trump’s decision to step back from a worse way and negotiate how to deal with these imbalances is a much better way,” billionaire investor Ray Dalio said in a post on X late Wednesday, adding: “I hope… he will do the same with the Chinese.”
But signs of stress remain in markets beyond just stocks. The bond market, which had been selling off alarmingly fast — the 10-year Treasury yield surged past 4.5% Wednesday from under 4% earlier in the week — has cooled off just a bit. Yields rise when bond prices fall.
But the 10-year yield was above 4.3% Thursday. That’s not exactly a vote of confidence.
“Bonds are signaling that the pause is significant, yet not much has fundamentally changed,” said ING analysts in a note to investors Thursday. “Markets will not easily forget these episodes with wide market swings.”
Oil prices also remained under pressure. US oil fell again Thursday to below $60 a barrel, near where oil was in April 2021. Prices had fallen dramatically below $57 a barrel Wednesday before recovering. Brent crude, the global benchmark, also fell 4% to around $63 a barrel.
Still, global markets recovered sharply Thursday.
Japan’s benchmark Nikkei 225 index finished more than 9% higher, while South Korea’s Kospi index was up 6.6%. Hong Kong’s Hang Seng index jumped 2.1%. Taiwan’s Taiex rose 9.3%. In Australia, the ASX 200 closed up 4.5%.
European stocks surged after European Commission President Ursula von der Leyen paused retaliatory tariffs and said she welcomes Trump’s move to pause his “reciprocal” tariffs.
“It’s an important step towards stabilizing the global economy,” she said Thursday in a statement. “Clear, predictable conditions are essential for trade and supply chains to function.”
Europe’s benchmark STOXX 600 index was 3.7% higher Thursday. France’s CAC index was up 3.8% and Germany’s DAX jumped 4.5%, while London’s FTSE 100 index rose 3%.
