Trump’s tariffs sink U.S. stock market
San José, CA – On Thursday, April 3, one day after Trump’s newest tariffs announcement, prices did start to fall as candidate Trump promised. The only problem is that it was the prices of stocks, not groceries.
The broadest index, the S&P 500, which includes 500 large corporations, fell almost 5%. The technology-heavy NASDAQ fell even more, dropping almost 6%. This was the biggest one-day drop since the COVID-19 hit the United States in 2020.
What set off the stock market sell-off was President Trump’s announcement of tariff increases the day before, which Trump named “Liberation Day.” Trump announced a minimum 10% tariff for almost all countries, and much higher tariffs for countries where the United States had large trade deficits. While Trump claimed that they were “reciprocal tariffs,” that is, based on other country’s tariffs, in fact they were calculated based on the U.S. trade deficit with each country.
These tariffs were piled on top of Trump’s previous tariffs. So, for example, China will now face the 20% tariffs from February plus 34% additional tariffs, for a total of 54% tariffs. This means that for every good that comes into the United State from China the importer will have to pay a fee equal to 54% of the price of the good. Trump’s 25% tariffs on imported cars also kicked in.
While Trump believes that the exporter pays the tariff, in most cases, the consumer will bear the brunt of the cost of the tariff through higher prices.
Even worse for the consumer, goods made in the United States that compete with imports will also go up in price. This is what happened during Trump’s first term, when he placed tariffs on iron and steel. While import prices went up 25%, domestic steel producers raised their prices on average 22%, preferring to make a quick buck than increasing production.
Trump also believes that higher priced imports will cause there to be more production in the United States. But his tariffs on iron and steel, and coming tariffs on imported car parts, increase the cost of production of goods using the tariffed goods. So, while there were small increases in production of iron and steel, leading to more jobs, the losses in industries using iron and aluminum for production were far greater, leading to an overall job loss.
This is even greater with Trump’s tariffs on imported automobiles. Over the last 30 years the auto industry has built plants across Canada, Mexico and the United States based on the no-tariff rules of NAFTA and now the USMCA [United States-Mexico-Canada Agreement] that Trump himself negotiated. But rather than moving plants to the United States, which would take billions of dollars and years of construction time, auto makers have started to shut down plants in Canada and Mexico on the belief that their cars cannot be sold with the 25% tariff. But parts for these plants are often made in the United States, so they can be shut down too. This is the case with Stellantis, which suspended production at plants in Canada and Mexico, leading to layoffs at their part plant here in the United States.
Another issue is that of retaliation and the costs to American workers and farmers. In Trump’s first term, he only tariffed about half of imports from China, but China’s retaliation by cutting off purchases of U.S. farm goods, especially soybeans, led the Trump administration to spend more than $20 billion on aid to farmers. This time, with Trump putting tariffs on virtually the whole world, the retaliation will be much greater and the cost in terms of lost business sales and workers’ jobs, will be much greater.
One of the impacts of Trump’s trade war is growing uncertainty among businesspeople, who are holding off hiring and investment decisions given the escalating trade war. For this reason, even mainstream economists are raising their estimates of the likelihood of a recession in the United States later this year. Factoring the damage to the economy caused by retaliation, the job cuts of federal workers, as well as terminating government contracts, it is more likely than not there will be a recession.
How bad could it get? Trump has threatened additional tariffs on semiconductors, pharmaceutical drugs, copper, timber and lumber, and more. He has also threatened more tariffs on countries that retaliate, countries that buy oil from Venezuela, countries that tax digital services by U.S. companies, etc. So rather than providing more certainty, “Liberation Day” marks the beginning of even more uncertainty.
With the Trump administration and their minions at DOGE going all out to cut spending, and with Republican majorities in both the House and Senate, it is very unlikely that there will be anything like the massive aid in 2008-2009 and 2020. Without federal spending, it is quite possible for the economy to continue to grind down, in a deep and painful recession.