Market Reaction to Trump’s 2025 Tariff Policy: A Closer Look at the Market Sell-Off

On 2 April 2025, global financial markets experienced significant turmoil following President Donald Trump’s announcement of sweeping new tariffs. The announcement led to immediate and drastic reactions in the financial markets, reigniting fears of a trade war and triggering widespread investor uncertainty.

This article explores how the announcement and other contributing factors led to one of the most significant market declines in recent memory.

Key Points

• Trump’s sweeping tariffs triggered a historic global market sell-off, wiping out trillions in value.
• Major indices plunged, with the Nasdaq entering a bear market and the Dow posting record back-to-back point losses.
• Investors flocked to safe-haven assets like gold, bonds, and the yen, while crypto markets also saw sharp declines.

What Led to the Stock Market Meltdown ^[1]

On 2 April 2025, President Donald Trump announced a new tariff policy that imposed a flat 10% duty on all imports starting 5 April. Higher tariffs or what the White House called “reciprocal tariffs”, were set for countries with large trade surpluses (or “worst offenders” to use Trump’s words) with the US—34% for China, 20% for the EU, and 24% for Japan. The move aimed to rebalance trade, protect US industries, and push foreign companies to manufacture in America .

The announcement shocked global investors who were complacent and poorly positioned, and raised fears of a renewed trade war. Markets plunged as traders reacted to the scale and speed of the tariffs, with no clarity on how long they would last. The uncertainty triggered a massive sell-off in stock markets, sending shockwaves through all global markets.

Learn more about Trump’s reciprocal tariffs in our full article.

How did the Stock Markets React?

Global markets saw widespread declines, as investor sentiment turned sharply risk-off. Concerns over trade disruptions and economic uncertainty triggered heavy sell-offs across all major indices.

US Stock Market ^[2,3,4]

US stock plunged on 4 April 2025, as investors braced for more losses following President Trump’s sweeping tariff announcement.

• Dow Jones Industrial Average fell over 5.5%
• S&P 500 dropped 6%
• Nasdaq-100 fell by 5.8%

This sharp drop followed a historic two-day market rout to end the previous week. The Dow suffered consecutive losses of over 1,500 points for the first time, including a 2,231-point plunge on Friday alone, which equated to a 5.5% drop. Meanwhile, the S&P 500 lost close to 11% in just two sessions, the third worst two-day sell-off this century, while the Nasdaq officially entered a bear market after falling 22% from its peak.

Despite the sell-off, the White House stood firm on its tariff strategy. President Trump addressed the downturn on Sunday evening, saying, “I don’t want anything to go down, but sometimes you have to take medicine to fix something” ^[5]. Markets remain on edge following the policy shift, with volatility expected to remain high.

Asia Market ^[6,7,8]

Asian shares plunged at the open on 7 April, extending the global sell-off triggered by tariff tensions and sharp declines on Wall Street. Japan’s Nikkei 225 dropped nearly 9% in early trading, prompting a brief suspension before closing 7.9% lower at 31,136.58. The broader Topix index also slid 7.7% while South Korea’s Kospi experienced a trading halt after steep losses.

The Nikkei officially entered bear market territory, having fallen over 20% from its December high. Panic selling spread across the region, with Hong Kong’s Hang Seng index tumbling almost 12% by the end of the session. In mainland China, where markets reopened after a public holiday, the Shanghai Composite and CSI300 fell more than 7%.

In essence, investor confidence across Asia was severely shaken by the growing threat of a global trade war. Tariffs here are higher than elsewhere because these countries are very focused on exports to the US. This implies a very strong impact. The abrupt escalation in tariffs and uncertainty around possible retaliation raised fears of prolonged economic disruption. As a result, risk sentiment deteriorated sharply, leading to one of Asia’s worst trading sessions in recent years.

Europe and UK Market ^[9]

European markets opened sharply lower on 7 April, extending last week’s steep losses as Trump’s tariffs fuelled investor fears. At one point, Euro Stoxx 50 futures fell over 6%, extending an 8% decline from the previous two sessions. Germany’s DAX index, heavily exposed to global trade, plunged 10% at the open, while France’s CAC 40 fell 6.6% and Italy’s FTSE MIB slid 5.7%. In the UK, the FTSE 100 shed 6%, to a one-year low of 7,566.

VIX Index ^[10,11]

The Cboe Volatility Index (VIX), which measures expected market volatility, surged to 45.31 on 4 April—its highest closing level since April 2020 and climbed again on 7 April before parings gains.

Often called Wall Street’s “fear gauge,” the VIX spiked as investor anxiety soared amid fears of a deepening trade war. Experts say a VIX reading above 40 signals serious market stress, often linked to broader risks like credit issues or potential financial contagion.

The sharp rise in volatility came as the S&P 500 dropped to an 11-month low and demand for put options—used to hedge against further losses—hit a record high.

How Much Did the Stock Market Lose? ^[12,13,14]

The US stock market has erased $11.1 trillion in value since President Trump’s Inauguration Day, with tech stocks bearing the brunt. With the announcement of President Trump’s reciprocal tariffs, global markets have seen historic losses. The abrupt nature of the policy shift took investors by surprise—while markets had priced in a modest 8.6% increase in tariffs for 2025, Trump raised them by nearly 20% on 2 April.

This unexpected move triggered a wave of panic selling, wiping out $6.6 trillion from the US stock market in just two days—the largest two-day loss on record. The so-called Magnificent 7—Apple, Amazon, Meta, Microsoft, Alphabet, Tesla, and Nvidia—lost a combined $1.8 trillion over just two sessions.

• Apple: Down $533 billion
• Tesla: Down $139 billion
• Nvidia: Down $393 billion
• Meta: Down $200 billion
• Amazon: Down $265 billion
• Microsoft: Down $165 billion
• Alphabet: Down $139 billion

Impact on Other Asset Classes  ^[15,16,17]

As equities plunged, investors quickly shifted to traditional safe-haven assets to manage risk and preserve capital. The Japanese yen and Swiss franc both appreciated over 3% against the US dollar, reflecting rising demand for currencies typically seen as stable during market stress.

Meanwhile, bond markets saw a surge in demand, driving yields lower. The 10-year US Treasury yield fell 89bps to 3.87%, while Japan’s 10-year government bond yield dropped  to a low of 1.05%—its lowest level since December 2024.

Gold surged to a record high following the tariff announcement, supported by escalating trade tensions, strong central bank demand, and a weakening US dollar. Prices reached an all-time high of US$3,167.57 on 3 April, reflecting heightened investor demand for safe-haven assets.

However, by 7 April, spot gold had pulled back 1.9% to US$2,981.09 an ounce—its lowest level since 13 March—leading some analysts to caution that gold may now be overbought in the short term.

The sell-off also extended to cryptocurrencies, with Bitcoin falling 12% since the tariff announcement and dropping to a low of $74,700. The broader crypto market shed 9% of its total market cap, as investors pulled out of riskier assets. Major altcoins like Ethereum, XRP, and Solana posted losses ranging from 7% to 10%, underscoring the widespread shift to a risk-off environment.

Market Outlook: What Lies Ahead

Forex

If there is no sign of a U-turn by President Trump on tariffs, risk-off means safe haven currencies, and especially those in countries with large current account surpluses (so those not dependent on foreign capital), will remain heavily in demand. We expect outperformance in JPY and CHF until uncertainty eases.

Emerging markets and commodity dollar currencies like AUD and NZD will suffer in this environment. The dollar is vulnerable as markets focus on the detrimental impact of tariffs on the US consumer. Only if any severe dislocations occur will investors then bid up the greenback, or if uncertainty eases and we see a reversal of recent dollar selling.

Commodities

Oil, metal and agricultural commodities have all suffered. Regarding crude, the decision from OPEC+ to increase supply in May by more than expected has added to the sharp move lower. The severe price drop also means there will likely be a swift slowdown in drilling activity in the US.

Gold has been sold recently to cover investors’ losses elsewhere, but an underlying bid from central banks should remain. The scale of the broader commodity complex sell-off suggests the market is pricing in a significant demand hit as global growth and recession fears grow. Much will depend on tariff retaliation, and any negotiations that yield positive results and an easing in recession and demand concerns, especially regarding China.

Bonds

Tariffs are supposed to push up prices which should mean Treasury yields go higher. But initially, markets focused on the potential growth hit to the US economy and currently price in around four 25bps rate cuts for this year from roughly three before Liberation Day, with a 50% chance of the first in May ^[18].

We always remind ourselves that consumer spending is 70% of the economy and if that activity stalls, that will have inevitable consequences for jobs and the outlook. However, if inflation does start to rear its head, then bond prices will go lower and yields higher as interest rates are then predicted to be held high for longer. Yields could also go higher if investors adopt a ‘Sell America’ stance and shed their Treasuries, which would be an extremely worrying development.

Indices

Stocks have been slammed as investors have been both wrong footed by the scale of tariffs and frightened by a potential trade war. Outright derisking took place on Friday ahead of the weekend with sharp position adjustments, while forced liquidation on Monday morning on the open of the Asian and European sessions saw outsized moves which look very overdone.

“Headline havoc” continues to influence market sentiment, with investors watching closely for any potential reprieve or delay on tariffs from the Trump administration. Some commentators have speculated that a 20% correction from the record high in the S&P 500 (4,915) could prompt a policy response, though this remains uncertain. The 4,850 has been highlighted by some as a potential area of long-term technical support. Markets will also be closely monitoring the upcoming earnings season , with particular attention on corporate guidance and the potential impact of ongoing trade tensions.

Some analysts suggest European markets may appear more attractive following the recent sell-off, as anticipated fiscal spending could support certain sectors. While equity valuations have declined and are now just above their decade-long lows, they remain within that range. However, if a broader structural shift is occurring, further downside may be possible — particularly if forward earnings face pressure from ongoing trade and tariff developments.

Navigating Volatile Markets: Short-Selling in Uncertain Conditions

The April 2025 market crash highlights the vulnerability and deep interconnection of global financial markets in response to sudden policy changes. The sharp sell-off wiped out trillions in stock market value, highlighting the global fallout from US trade policy shifts.

In times of heightened volatility, staying informed and adaptable becomes essential. Understanding how markets react to macroeconomic shifts may present opportunities to trade Contracts for Difference (CFDs), which offer the flexibility to speculate on both rising and falling markets. That said, CFDs are also complex instruments and come with a high risk of losing money rapidly due to leverage. Retail investors should consider whether they understand how CFDs work and whether they can afford to take the high risk of losing their money.

Open a live account with Vantage today to access dynamic market conditions and apply your trading strategies — but remember, trading CFDs involves significant risk and may not be suitable for all investors.

FAQs

Are we in a recession?

As of 7 April 2025, the US economy is not officially in a recession. However, recent developments have heightened concerns among economists and financial institutions about a potential downturn.

J.P. Morgan increased the probability of a US and global recession to 60%, up from 40% previously ^[19]. Similarly, Goldman Sachs raised the odds of a US recession to 45% ^[20]. While these projections indicate elevated risks, a recession is typically defined by two consecutive quarters of negative GDP growth, which has not yet occurred.

Is the stock market crashing? ^[21]

The stock market has experienced sharp and rapid declines following the recent tariff announcements. On Thursday and Friday alone, the Dow Jones Industrial Average dropped a combined 3,910 points, marking the first time in history it has fallen more than 1,500 points on back-to-back days. Friday’s 5.5% drop was the Dow’s worst since the COVID-19 pandemic in June 2020.

The S&P 500 fell 5.97% on Friday and 4.84% on Thursday, bringing its total two-day loss to nearly 11% and pushing it over 17% below its recent high. Meanwhile, the Nasdaq Composite dropped almost 6% on both days, and is now down 22% from its December peak, officially entering bear market territory.

While these sharp declines are concerning, whether they constitute a full market crash depends on subsequent market performance and broader economic indicators. Investors are advised to monitor the situation closely and consult financial advisors to navigate the current volatility.​

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