Dow drops 1,600 as U.S. stocks lead worldwide sell-off after Trump’s tariffs cause a COVID-like shock
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NEW YORK — Wall Street shuddered, and a level of shock unseen since COVID-19’s outbreak tore through financial markets worldwide Thursday on worries about the damage President Trump’s newest set of tariffs could do to economies across continents, including his own.
The Standard & Poor’s 500 index sank 4.8%, more than major markets across Asia and Europe, for its worst day since the pandemic crashed the economy in 2020. The Dow Jones industrial average dropped 4%, and the Nasdaq composite tumbled 6%.
Markets plunged and countries readied their retaliation plans a day after Trump announced sweeping tariffs affecting nearly every country.
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 — including crude oil, Big Tech stocks and 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,” said 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 such as 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.
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 talked about wresting manufacturing jobs back to the United States, a process that could take years.
With vehicle prices expected to rise sharply as a result of Trump’s auto tariffs, many consumers are rushing to make purchases before the tariffs take effect.
If Trump follows through on his tariffs, stock prices may need to fall much more than 10% from their all-time high 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 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 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 up 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. A report 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 4 out of every 5 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 points to 40,545.93, and the Nasdaq composite tumbled 1,050.44 points 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%.
Japan’s Nikkei 225 sank 2.8%, Hong Kong’s Hang Seng lost 1.5%, and South Korea’s Kospi dropped 0.8%.
Choe writes for the Associated Press.
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