Financial markets plummeted on Thursday in response to President Donald Trump’s sweeping announcement of new tariffs covering nearly all U.S. imports. The move, intended to reset global trade dynamics, sent investors into a frenzy, leading to the most severe single-day selloff in years.

The S&P 500 index plunged almost 5%, effectively wiping out approximately $2 trillion in market value. This marked the steepest one-day drop for the index since June 2020, when pandemic-induced fears gripped investors. The Dow Jones Industrial Average fell 4%, while the Nasdaq Composite, heavily weighted with tech stocks, suffered a 6% decline—its worst day since March 2020.

Thursday’s market carnage signaled widespread investor alarm over Trump’s bold tariff agenda, with fears mounting over rising inflation, global trade retaliation, and economic contraction.

Retail and Energy Sectors Bear the Brunt

Retail stocks were among the biggest losers as businesses that rely on global supply chains anticipated higher costs. Nike tumbled 14.5%, while Lululemon dropped 10%. Ralph Lauren, another brand heavily dependent on overseas production, slid 16%, highlighting the potential damage to consumer-facing companies.

The energy sector also took a beating. Valero Energy led losses among oil drillers with a 15% drop, as crude prices fell nearly 7% amid rising concerns about a global slowdown. Fears that demand for energy will shrink in a trade-constrained world drove the selloff.

Small-cap stocks, represented by the Russell 2000 Index, were not spared either. The index closed 6.6% lower and has now fallen over 20% since its November peak—officially entering bear market territory.

Early Market Verdict: Deep Skepticism and Fear

The selloff reflects a grim early judgment from investors on Trump’s strategy to radically rework international trade through high tariffs. Even before this week’s official rollout, Trump’s unpredictable approach to trade had already been unsettling markets.

Now, with the full plan unveiled, the reaction has been swift and unforgiving. Many in the financial community worry that these tariffs will not only raise prices for American consumers but also provoke retaliatory trade actions, slow growth, and push the economy toward recession.

This pessimism runs counter to Trump’s reelection platform, which promised rapid improvements to an economy he deemed flawed yet resilient. Instead, the tariff announcement has brought fresh volatility and uncertainty, with analysts increasingly warning of a potential downturn.

Global Trade Under Strain: Decades of Integration at Risk

For years, the United States has operated as the world’s de facto consumer of last resort—buying vast quantities of goods produced cheaply abroad. This system contributed to the country’s extensive trade deficits, which Trump has long criticized as evidence of economic exploitation.

Trump argues that this imbalance has eroded American manufacturing jobs, a claim with some merit, although technological advancements and automation have also played a significant role. Over time, some regions in the U.S. have adapted to the shift toward a service-based economy more successfully than others.

Even as real median wages for men finally matched their late-1970s levels in recent quarters, Trump contends the trade structure has cost American workers dearly. However, many economists caution that trying to reverse global supply chains could have unintended and harmful consequences.

Charting the Impact: U.S. Tariffs Now Among the Highest in the World

As part of Wednesday’s rollout, Trump presented a chart showing what he described as other countries “charging” the U.S.—a reference to trade deficits rather than formal fees. The chart, however, obscured the complexities of international commerce.

For instance, the U.S. runs a sizable trade deficit with Cambodia, yet economists do not view that as evidence of malfeasance. Rather, it reflects a natural consequence of American consumers purchasing more Cambodian-made goods than vice versa.

Under Trump’s new plan, the average U.S. tariff rate will spike to 29%, according to estimates by Evercore. This would make the United States one of the most protectionist economies among developed nations.

To put that in perspective:

• South Korea has an average tariff rate of 5.73%

• Turkey, 7.48%

• Switzerland, 3.16%

• Most European nations, 1.95%

• Canada, 1.83%

• United Kingdom, 1.13%

• Chile, less than 1%

In contrast, the U.S. will now rank among the highest globally.

Economists Push Back on Trade Deficit Logic

Many economists reject the notion that bilateral trade deficits indicate unfairness. Felix Tintelnot, an economist at Duke University, explained it with a simple analogy: “You spend your money at Trader Joe’s, but they don’t buy anything from you. Your employer pays your salary, but you typically don’t purchase anything from them. The existence of bilateral deficits is perfectly normal in an integrated economy.”

Eliminating these imbalances, analysts argue, would require moving low-wage, labor-intensive production back to the U.S.—a shift likely to reduce American workers’ earnings and overall purchasing power.

Economic Warning Bells Ring Loudly

“The tariffs will make the U.S. poorer and invite retaliation from our allies and trading partners,” warned Erica York, vice president of federal tax policy at the Tax Foundation. She criticized the move as “a campaign promise that should have gone unfulfilled.”

Other experts have been equally blunt. Some labeled the plan “worse than the worst-case scenario,” while others called it “a perfect recipe for stagflation”—a toxic mix of stagnating growth and rising prices. Many warned that the ripple effects could push multiple countries into recession.

Auto Industry Feels the Heat

Adding to the economic shock, Trump’s 25% tariffs on imported automobiles—announced last week—quietly took effect overnight. Additionally, the administration plans to impose a 25% levy on imported auto parts by May 3, meaning nearly every new car sold in the United States could soon be subject to extra tariffs.

This is expected to further disrupt an industry already grappling with post-pandemic supply challenges, rising input costs, and evolving technology demands.

Global Markets Follow Wall Street Down

The tariff-driven panic extended beyond U.S. borders. Japan’s main stock index and the Stoxx 600 in Europe each dropped 2.7%, while the U.K.’s FTSE 100 shed 1.7%. Markets in Germany, France, and Italy fell by around 3%, underlining how deeply interconnected the world’s economies have become.

While some overseas markets had recently rallied on hopes of stability in U.S. foreign policy, Trump’s trade announcement erased those gains in hours.

Conclusion: A High-Stakes Gamble with Global Consequences

President Trump’s sweeping tariffs represent a bold, high-stakes bet aimed at reshaping global trade in favor of American workers. However, the early fallout suggests the approach may backfire, risking economic growth, market stability, and diplomatic relations.

With stock markets reeling, economists voicing strong concerns, and other nations preparing responses, the administration now faces growing pressure to reassess a plan that could fundamentally reshape the global economic order—for better or, as many now fear, for worse.