U.S. stock futures faced pressure late Wednesday afternoon following President Donald Trump's unexpected announcement of reciprocal tariffs on a wide range of trading partners during a "Liberation Day" event held at the White House. As of 4:45 p.m. ET on April 2, 2025, S&P 500 futures were down 1.7%, Nasdaq 100 futures fell 2.5%, and futures on the Dow Jones Industrial Average dropped 0.7%. Prior to Trump's announcement, the stock market had shown signs of recovery; the S&P 500 gained 0.7%, the Dow Jones Industrial Average rose nearly 0.6% (over 200 points), and the Nasdaq Composite increased by approximately 0.9%. Both the Nasdaq and the S&P 500 had been down more than 1% earlier in the day.
Tesla (TSLA) shares played a pivotal role in the market's initial recovery, despite falling nearly 5% due to weaker-than-expected first-quarter deliveries. However, the stock rebounded by more than 5% following a report from Politico indicating that CEO Elon Musk is expected to leave his position in the Department of Government Efficiency (DOGE) soon. Amazon (AMZN) also experienced a 2% increase after the New York Times reported that the tech giant made a "last-minute bid" for TikTok.
The day marked a significant moment for investors, who were eager for clarity regarding the new trade policies that have created uncertainty in the markets. The yield on the 10-year Treasury note inched up about 4 basis points to 4.19%, moving away from a recent six-month low. Yet, the specifics of the new reciprocal duties remain unclear, raising concerns about potential shocks to the U.S. economy.
As fears mount that these duties could ignite a full-scale trade war, the implications for the global economy are significant. On the economic front, the private sector added more jobs in March than anticipated, according to fresh ADP data, setting the stage for the upcoming March jobs report, which is critical for assessing the health of the U.S. economy amidst these trade tensions.
In a related development, Asia-Pacific markets plunged on Thursday, April 3, 2025, following Trump's imposition of hefty tariffs on over 180 countries and territories. The White House indicated that the new reciprocal tariff rate on China would be added to existing tariffs totaling 20%, resulting in a staggering total of 54% on goods from Beijing. Other countries, including India, South Korea, and Australia, face tariffs of 26%, 25%, and 10%, respectively.
Chris Kushlis, chief emerging markets macro strategist at T. Rowe Price, remarked that these fresh tariffs "represent a significant increase in tariffs on Asian exports, and arguably more than anticipated by the market." He noted that the U.S. accounts for approximately 15% of exports from the Asia-Pacific region, meaning that tariff increases ranging from 20% to 35% could pose a substantial headwind to growth this year, particularly for economies that are heavily reliant on trade.
Interestingly, China, which has the largest trade deficit with the U.S., does not face the highest reciprocal tariffs. Instead, Southeast Asian countries, which previously benefitted from tariffs on Chinese goods, now face some of the steepest rates. Japanese markets led the losses in Asia, with the Nikkei 225 paring losses of over 4% to end the day 2.77% lower at 34,735.93. The broader Topix index closed down 3.08% at 2,568.61.
South Korea's Kospi index managed to reduce its losses from over 3% to close 0.76% lower at 2,486.70, while the small-cap Kosdaq fell 0.2% to 683.49. In mainland China, the CSI 300 declined by 0.59% to finish at 3,861.50, and Hong Kong's Hang Seng Index dropped 1.60% in its final hour of trading. India's benchmark Nifty 50 fell 0.31%, while the broader BSE Sensex decreased by 0.36%. Meanwhile, Australia's S&P/ASX 200 fell 0.94% to close at 7,859.70.
Despite the negative market sentiment, Australia's S&P Global Purchasing Managers' Index reading came in at 51.6 for March, slightly up from 51.3 the previous month. Spot gold reached a record high, trading at $3,123.65 per ounce as investors sought safety in the precious metal amidst the market turmoil.
Looking ahead, Stephen Dover, chief market strategist and head of the Franklin Templeton Institute, cautioned that the tariffs "do not work if prices do not increase." He estimated that the average American family could pay up to $4,200 more per year due to the new tariffs, assuming an average rate of 20% on imports. This could lead to a slowdown in household and business spending, increasing the risk of disappointing U.S. growth and earnings in 2025.
On the previous day, U.S. futures were already under pressure due to concerns about a potential global trade war that could adversely affect an already slowing U.S. economy. In a volatile trading session, the S&P 500 advanced 0.67% to close at 5,670.97, while the Nasdaq Composite added 0.87% to finish at 17,601.05. The Dow Jones Industrial Average rose by 235.36 points, or 0.56%, settling at 42,225.32. Shares of Tesla climbed 5.3% on news that President Trump indicated to his cabinet that Elon Musk would be stepping back from his government role.
As the market reacts to the unfolding situation, analysts and investors alike are left grappling with the implications of these new tariffs and the potential for a trade war that could reshape economic relationships globally.
