Turmoil on financial markets deepened on Friday, as China hit back at tariffs announced by Donald Trump, raising the likelihood of an extended trade war and damage to the global economy.
All three major stock indexes in the US plunged more than 5%, with the S&P 500 ending the day almost 6% lower, as the sell-off sparked by the tariffs announcement spread.
In the UK, the FTSE 100 plunged almost 5% - its steepest fall in five years, while Asian markets also dropped and exchanges in Germany and France faced similar falls.
The global stock market has lost trillions in value over two days, a rout sparked by Trump’s announcement of sweeping new 10% import taxes on goods from every country.
Analysts say the moves, some of which are due to go into effect as soon as Saturday, amount to the biggest tax increase in the US since 1968.
They expect the measures to lead to a contraction in trade, and have warned they could drive many countries into an economic recession. In a note to investors, JP Morgan said it now put the odds of a global economic recession this year at 60%
Trump imposed on us not just the biggest tax increase in US history, but a tax increase that will be disproportionately paid by lower and middle income people. In case you are not yet aware, these are not random market fluctuations. Trump’s tariffs that average +20% overall are bigger than the Smoot Harley tariffs that caused the Great Depression. The immediate market drop happened because of the historical parallels. The total market drop of the S&P in the last 2 days is 10% of market cap. But because of Recency Bias and/or ignorance of history, some people will need to see this play out. And so every day that people hear the news of another country retaliating against US tariffs, there is likely to be more market drops in reaction. Also, when we hear the actual news about lower earnings and fewer exports and more layoffs (e.g Stellantis) and higher prices.