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Washington/Brussels: Stock markets in the US ended their worst week since the 2020 pandemic and banks began to forecast a recession in the world’s largest economy after President Donald Trump’s unprecedented tariffs sparked retaliation from China and sparked fears of a global trade war.
Trump accused Beijing of panicking and said they “played it wrong” by responding to his additional 34 per cent tariff on Chinese imports with an equivalent duty on all American goods. Beijing had earlier condemned the US president for “bullying” and endangering international economic development.
The S&P 500 slumped 5.97 per cent on Friday, closing out its worst week since the COVID pandemic.Credit: Bloomberg
Meanwhile, British Prime Minister Keir Starmer was planning to spend the weekend calling other world leaders, urging them to resist an all-out trade war, having spoken to both Prime Minister Anthony Albanese and Italy’s Giorgia Meloni on Friday.
A spokeswoman for Albanese confirmed the pair had affirmed their support for “free and fair trade” and the need for leaders to ensure there was not an escalation of trade impediments.
The Trump administration and top Republican leaders emphasised a stronger-than-expected US employment report released on Friday (Saturday AEDT) that revealed 228,000 jobs were added in March. But it was not enough to temper a further tariff-driven sell-off, with the Dow Jones falling 5.5 per cent in its biggest one-day drop since 2020, and the NASDAQ closing nearly 1000 points lower, officially entering a bear market.
A record $US6.4 trillion ($10.4 trillion) has been wiped from US markets in the two days since Trump announced his worldwide tariffs. London’s FTSE 100 also fell nearly 5 per cent on Friday.
US President Donald Trump arrives at the Trump International Golf Club in West Palm Beach, Florida, on Friday.Credit: AP
The country’s largest bank, JPMorgan, expected the US to fall into recession this year. Its chief US economist Michael Feroli said the bank predicted gross domestic product to contract by 0.3 per cent “under the weight of the tariffs” and unemployment to rise to 5.3 per cent from 4.2 per cent.
US Federal Reserve chairman Jerome Powell said the tariffs Trump unveiled this week – a 10 per cent “baseline” tax on all imports, and higher rates for about 60 countries – went further than predicted and would likely cause at least a temporary increase in inflation, although he warned the effects could be persistent.
“While uncertainty remains elevated, it is now becoming clear that tariff increases will be significantly larger than expected, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Powell told the Society for Advancing Business Editing and Writing in Arlington, Virginia.
US Federal Reserve chairman Jerome Powell said the larger than expected tariffs increased the inflation risk, potentially for longer.Credit: AP
“The size and duration of these effects remains uncertain … Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem.”
White House advisers trumpeted the strong employment data, as well as an announcement by Nissan, reported by The Wall Street Journal, that it would pause plans to cut jobs at a factory in Tennessee.
At the same time, other car manufacturers began to cut. Stellantis, the parent company of Chrysler, said it was pausing production at assembly plants in Mexico and Canada and temporarily laying off 900 workers at five US facilities following the tariff announcement.
White House press secretary Karoline Leavitt said the jobs figures showed “the economy is starting to roar” and “the president’s push to onshore jobs here in the United States is working”.
Trump continued to project confidence, likening his tariffs and other economic reforms to complex surgery on a sick patient. He indicated there was room for countries to negotiate on the tariffs, saying “the rest of the world wants to see if there’s any way they can make a deal”.
Vietnam had offered to cut its tariffs to zero, Trump said, following what he called a productive phone call with Communist Party General Secretary To Lam.
But following China’s retaliation, Trump wrote in an all-caps post on Truth Social: “China played it wrong, they panicked – the one thing they cannot afford to do!” China is the US’s third-largest export market led by oilseeds, grain, semiconductors, oil and gas.
Trump’s son Eric Trump posted: “I wouldn’t want to be the last country that tries to negotiate a trade deal with [Donald Trump]. The first to negotiate will win – the last will absolutely lose.”
In Brussels, US Secretary of State Marco Rubio defended Trump’s actions despite having been warned by his NATO counterparts that any economic downturn from a trade war could directly affect US allies’ ability to increase defence spending.
“We’re the largest consumer market in the world, and yet the only thing we export is services, and we need to stop that,” Rubio said. “We need to get back to a time where we are a country that can make things, and to do that, we have to reset the global order of trade.
“I don’t think it’s fair to say economies are crashing. Markets are crashing because markets are based on the stock value of companies who today are embedded in modes of production that are bad for the United States.”
French Finance Minister Eric Lombard said Europe would enact a “proportionate response” aimed at bringing the US to the negotiating table.
He said the EU should not “reply with the same weapons”, as retaliatory tariffs on US imports to Europe could hit European consumers. Instead, Lombard said Europe was working on a response that could go beyond tariffs to include taxes or regulations to target businesses but not whole sectors.
A Downing Street spokesman said the UK would be guided by the national interest and Starmer would calmly continue with preparatory work, rather than rush to retaliate.
“While the global economic landscape has shifted this week, it has been clear for a long time that like-minded countries must maintain strong relationships and dialogue to ensure our mutual security and maintain economic stability,” he said.
In the US, early signs of a backlash to the market rout were evident in Congress, where four more Republican senators joined as co-sponsors of a bill introduced by Republican Chuck Grassley of Iowa and Democrat Maria Cantwell of Washington. The bill would terminate new tariffs within 60 days unless the US Congress explicitly approves them.
That followed an earlier bill passing the Senate that would unwind the emergency declaration Trump used to justify tariffs on Canada. However, it was unlikely to pass the House of Representatives.
A sustained trade war “would be a terrible outcome”, says Republican senator and Trump supporter Ted Cruz.Credit: Bloomberg
Ted Cruz, a Republican senator from Texas and Trump supporter, said there were “enormous risks” to the president’s tariff strategy.
“The good scenario is other countries freak out … and in response, other countries come rushing to the White House and say: we want to negotiate a deal and we’re going to dramatically lower our tariffs to US goods,” Cruz said on his podcast.
“If we’re in a scenario 30 days from now, 60 days from now, 90 days from now, with massive American tariffs and massive tariffs on American goods and every other country on earth, that is a terrible outcome.”
