‘Worse than worst-case scenario': Trump's tariffs send markets reeling

Al Jazeera

03-04-2025

After weeks of anticipation, global investors finally have sight of United States President Donald Trump's 'reciprocal' tariffs.
If the reaction of the stock market is any guide, the 'liberation day' tariffs unveiled on Wednesday exceeded their worst fears.
From the US to Asia to Europe, markets tumbled as investors absorbed the implications of the sharpest turn towards protectionism by the world's largest economy since the 1930s.
Futures tied to the US's benchmark S&P 500 and tech-heavy Nasdaq-100 – which can be traded outside usual market hours – dropped more than 3 percent and 3.5 percent respectively, setting the stage for heavy losses when Wall Street reopens on Thursday.
Japan's benchmark Nikkei 225 dropped as much as 4.5 percent, while South Korea's KOSPI and Hong Kong's Hang Seng each fell more than 2 percent.
In Vietnam, the benchmark VN-Index suffered one of the worst days in its history, plunging more than 6 percent.
'The hike in tariffs was more aggressive than expected,' Lynn Song, chief economist for greater China at Dutch bank ING, told Al Jazeera.
'Many were expecting a range of 10-20 percent tariffs. This sort of aggressive move will probably risk some retaliation from the bigger players, though smaller countries could choose to try and negotiate for a lower rate.'
Daniel Ives, an analyst with Los Angeles-based wealth management firm Wedbush Securities, went as far as to describe Trump's plans as 'worse than the worst-case scenario'.
While Trump announced a baseline 10 percent tariff for all imports to the US, he confirmed that much higher duties would be imposed on dozens of other countries.
The steeper rates apply to both major US trading partners and smaller economies – and allies and rivals – alike.
China, the US's third-largest trading partner accounting for more than $430bn worth of US imports annually, is facing a 34 percent tariff.
When added to Trump's previous tariffs on Chinese goods, the latest tariff lifts the overall rate to 54 percent.
'In our view, the scale and speed of the new Trump administration's additional tariffs and other measures against China are much worse than markets had expected, though these events unfolding are consistent with our more cautious views,' Ting Lu, chief China economist at Nomura, said in a note.
The European Union is set to be hit with a 20 percent tariff, while Japan and South Korea are facing duties of 24 percent and 26 percent, respectively.
Some of the steepest rates have been applied to developing economies that potentially have the most to lose from serious disruptions to trade, including Cambodia, Vietnam, Laos, Myanmar, Sri Lanka and Laos, which are facing tariffs of 44-49 percent.
Trump's list included exemptions for a limited number of goods, including semiconductors, oil and pharmaceutical products.
'These tariff figures are worse than expected – certainly viewed from Asia, where everyone got hit. An export-dependent region is going to really struggle with sudden, huge price increases,' Deborah Elms, the head of trade policy at the Hinrich Foundation in Singapore, told Al Jazeera.
'This will result in a loss of jobs in markets that are already poor and often fragile.'
China and the EU, the world's two largest economies, have already promised to retaliate with their own trade measures, though many smaller trade-reliant economies are seen as hesitant to respond in any way that might exacerbate trade tensions further.
After weeks of market volatility due to uncertainty over Trump's plans, a key question is whether the tariffs could be eased in negotiations between Washington and its trade partners.
'The tariff announcement doesn't eliminate uncertainty, but it hopefully puts a boundary around how bad the economic consequences will be,' Brian Jacobsen, chief economist at Annex Wealth Management, told Al Jazeera.
'Including non-tariff barriers in the calculation has pushed the tariff higher than it otherwise would be. That's also the part that is hardest to quantify, so perhaps it leaves a large door open to negotiations. Framing these tariffs as reciprocal will hopefully reduce the likelihood of retaliation.'
Gary Ng, a senior economist with the investment bank Natixis in Hong Kong, said that while he expects US trade partners to work towards a compromise, it is likely that at least some of the measures will become permanent.
'Regardless of what the deal is, it is highly likely that the US will keep part of the tariffs for everyone,' Ng told Al Jazeera.
While the severity of Trump's tariffs seemed to take many investors by surprise, there is room for stocks to fall much further still – depending on the administration's next moves.
JPMorgan and Goldman Sachs have put the likelihood of Trump's protectionist policies tipping the US economy into a recession this year at 40 percent and 35 percent, respectively.
Veljko Fotak, an associate professor of finance at the University at Buffalo, said the market does not see Trump's latest announcement as the final word on tariffs.
'If that were the case, markets would be falling a lot more dramatically, as this kind of tariff regime would effectively guarantee a recession. The long-run tariff policy remains uncertain – how will other countries react? Will the US escalate? Will it pull back?' Fotak told Al Jazeera.
'Markets did react forcefully, but we will see further downward corrections if these tariffs persist – and more dramatic movements if the trade war escalates.'