Global financial markets were shaken on Friday as China struck back against US tariffs, escalating trade tensions and raising fears of long-term economic instability. Stock market volatility surged, with US equities suffering significant losses. All three major US indices, the Dow Jones, S&P 500, and Nasdaq, dropped more than 5%, with the S&P 500 falling nearly 6%. This marked the worst week for the US stock market since the chaos of the pandemic in 2020.

The FTSE 100 in the UK also saw a sharp drop of nearly 5%, its biggest five-year decline. European markets, including those in France and Germany, mirrored this downturn. Asian markets, which are heavily tied to trade with China and the US, also posted steep losses. While many analysts had predicted the possibility of a trade war, the speed and intensity of the market reaction were unsettling.

President Donald Trump attempted to downplay the impact, focusing instead on the strength of the US job market and reiterating his commitment to reforming international trade. “Hang tough,” he tweeted. “We can’t lose.”

Global Trade Faces Shockwaves from Aggressive US Tariff Expansion

Since Trump announced a broad 10% tariff on imports from nearly every country, the US stock market has seen trillions of dollars in value wiped out. These tariffs hit major trade partners, including China, the European Union, and Vietnam, with many nations facing even higher import taxes. The new duties, some of which take effect as early as Saturday, have been described as the most significant tax increase on the US economy since 1968.

Economists predict that these tariffs will lead to a sharp decline in global trade and could potentially push major economies into recessions. The International Monetary Fund (IMF) has warned that the risks of a global downturn are rising.

China, one of the hardest-hit nations, retaliated swiftly on Friday. The Chinese government imposed a 34% tariff on US goods, restricted exports of essential minerals, and placed several US firms on a blacklist. Chinese officials have condemned Trump’s approach as aggressive and inconsistent with international trade laws. In response, some countries continue to advocate for dialogue and seek to calm tensions, though many remain wary of the unpredictable nature of US trade policy.

The European Union (EU) has also reacted strongly. EU trade commissioner Maroš Šefčovič, who met with US delegates for a “frank” two-hour discussion, emphasized that while the EU remains open to negotiations, it would not hesitate to protect its interests. “We stay in touch,” Šefčovič posted on social media.

Trump’s latest trade measures, which go beyond expectations set by analysts, have left markets and businesses reeling. The volatility has sparked fears that the situation could deteriorate further, potentially leading to a protracted trade war.

Market Chaos Spreads Across Sectors as Analysts Warn of Deeper Damage

The immediate market losses were concentrated in sectors directly linked to international trade, such as Apple and Nike, both of which suffered significant declines. However, the fallout soon spread to other sectors, including consumer goods, healthcare, and utilities, which were previously considered insulated from such shocks.

Mike Dickson, head of research at Horizon Investments, explained that the full impact of the tariffs may take weeks to fully assess. “What concerns us most is what we witnessed at 6am when China responded. We fear more is coming,” he said.

JP Morgan raised its global recession forecast for 2025 from 40% to 60%, citing the economic disruption caused by the new tariffs. The bank also warned that US growth could be reduced by up to two percentage points. Some investors, however, view the pullback as part of a necessary correction after years of rising US share prices. “Markets fall faster than they rise,” said Tim Pagliara, CEO of CapWealth in Tennessee. “Trade imbalances have persisted for decades, and a correction is necessary.”

Federal Reserve Chairman Jerome Powell also weighed in on the situation, stating that while the US economy remains fundamentally solid, the scale of the tariffs was unexpected. Powell predicted that the tariffs would lead to slower growth and rising prices.

Business Owners and Global Players Brace for Aftershocks

For business owners like Pat Muscaritolo, the owner of Jacobson Appliance in New Jersey, the new tariffs could have a devastating impact. Muscaritolo, who has run his store for 40 years, warned customers to make purchases now before prices climb by 30–40% by the end of the month due to rising import costs.

Meanwhile, housing-related stocks were one of the few sectors to benefit from the financial chaos, as investors speculated that mortgage rates might decrease in the wake of the economic turmoil. Clothing giants like Nike, which had initially been hit hard, regained some ground after Trump reported a “very productive call” with Vietnam’s leader. Cambodia also offered to reduce tariffs and initiate talks.

However, the broader market sentiment remained grim. Apple, a company with deep ties to Chinese manufacturing, saw its stock drop more than 7% on Friday. The tech giant’s valuation has fallen by about 15% since the tariff news broke on Wednesday.

Some of Trump’s usual allies, including Republican Senator Ted Cruz, have started to voice concerns about the long-term consequences of the trade strategy. Cruz, speaking on a podcast focused on tariffs, admitted that while the measures could help in the long run, there are significant risks in the short term. “If we’re facing massive US tariffs and matching foreign levies in two months, the outcome is terrible,” he warned.

The fallout has extended beyond major corporations, reaching even smaller industries like fishing. In the Falkland Islands, Janet Robertson, general manager of Consolidated Fishing Limited, expressed concern over a new 42% US tax on the island’s toothfish exports. “We’re not making drastic decisions yet,” she said, but emphasized the importance of US sales. “US sales of toothfish matter a lot,” she added, noting that the fishing industry drives the island’s economy.

As the trade war continues to unfold, the global economy remains on edge, and businesses worldwide are bracing for the long-term impact of Trump’s aggressive tariff policies. Whether these measures will ultimately benefit the US or lead to greater economic disruption remains to be seen. One thing is certain: the road ahead will be rocky for both global markets and the businesses that depend on international trade.