US stocks sank on Thursday, pulling back after the major indexes staged a historic rally amid concerns that President Trump’s broad trade offensive has become a direct confrontation with China.
The S&P 500 (GSPC) dropped over 2%, while the tech-heavy Nasdaq Composite (IXIC) tumbled 2.9%. The Dow Jones Industrial Average (^DJI) fell more than 600 points, or 1.7%. The 10-year Treasury yield, (^TNX) in high focus amid bond market whiplash, fell to around 4.35%.
Markets on Wednesday had breathed a loud, collective sigh of relief after Trump paused many of the largest US tariff hikes on trading partners, with stocks notching one of their biggest one-day rallies since World War II.
But now Wall Street is weighing Trump’s remarkable escalation in the US trade battle with China, after he raised levies on imports from the country to a whopping 125%. That hike came after Beijing raised its tariff on US goods to 84% in retaliation to an earlier hike.
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“The trade war is now turning into a direct confrontation between the US and China … we could again be seeing escalation and de-escalation at the same time, pulling markets in different directions,” Rabobank analysts said.
And though a wider trade war is on hiatus, risks remain to the health of the US economy, and Trump’s move is “merely the end of the beginning,” according to JP Morgan.
Other parts of the president’s trade-policy overhaul are still in effect, including a 10% baseline tariff on most trading partners, 25% duties on steel and aluminum imports, and 25% duties on auto imports. Those elements could still lead to consequences analysts have warned about, such as rising prices and slower economic growth.
Read more: Live updates on Trump tariffs fallout
Some relief came on Thursday morning as the EU said it will hold off from implementing counter-tariffs on US goods for 90 days, matching Trump’s pause.
The release of March’s Consumer Price Index showed inflation pressures eased last month, increasing 2.5% on an annualized basis, less than what economists had expected. On a month-to-month basis, prices declined 0.1%, beating economists’ estimates of a 0.1% monthly uptick.
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