US stocks dive 3% as escalating trade tensions with China fuel recession concerns and stir volatility in global markets

On Thursday, April 10, 2025, US stock markets experienced sharp declines as concerns over President Donald Trump’s escalating trade war with China resurfaced, leading to a dramatic sell-off. The S&P 500 dropped 3.4% in late trading, erasing a significant portion of the previous day's gains. The market had surged 9.5% the day before, fueled by Trump’s decision to pause tariffs on many countries, but the relief proved short-lived. By the end of the trading day, the Dow Jones Industrial Average had plunged by 1,048 points, or 2.6%, and the Nasdaq composite saw a 4.3% drop, reflecting widespread concern across sectors.

The downturn intensified following clarification from the White House that the United States would increase tariffs on Chinese imports to 145%, higher than the 125% previously mentioned by Trump. This clarification sent shockwaves through the markets, prompting a deeper sell-off. At one point, the S&P 500 had fallen by as much as 6.3%, highlighting the market’s sensitivity to shifts in US trade policy. The rapid changes underscored the instability that traders have come to associate with Trump's unpredictable approach to international trade.

The ongoing trade tensions with China remain a central point of concern for investors. Trump’s aggressive tariff strategy has targeted Chinese imports with the goal of reducing the US trade deficit and pressuring Beijing over intellectual property issues. However, the rising tariffs are also taking a toll on the US economy. UBS strategist Bhanu Baweja highlighted the complexity of the situation, noting that while Trump's decision to pause many tariffs was seen as a positive shift, "the damage isn’t all undone." Even a partial rollback of tariffs might not shield the economy from the broader negative effects on corporate profits and economic growth.

Trump's announcement on Wednesday, in which he suggested pausing tariffs globally, was followed by a sudden U-turn, which left investors grappling with the unclear direction of the administration’s trade policies. The subsequent clarification that tariffs on Chinese goods would increase to 145%—not 125%—further rattled market sentiment. For many analysts, this heightens concerns that the US economy could face significant headwinds, as higher tariffs may dampen corporate earnings and consumer spending. As one expert put it, the threat of a recession is still looming.

The global impact of the escalating trade war was not limited to the US. In China, government officials responded by signaling a crackdown on the import of US films, a move that resulted in sharp declines in the stock prices of US entertainment giants. Warner Brothers Discovery, for instance, saw a 13.8% drop in its stock price following the announcement, with other media companies, including Walt Disney Co., also suffering significant losses. Disney’s stock sank 6.6%, reflecting the growing tension between the two nations.

The Chinese government’s decision to limit the number of imported US films was seen as retaliation for Trump’s tariffs. A spokesperson for the China Film Administration made it clear that such measures were “inevitable” given the trade conflict, suggesting that American cultural exports would become less appealing to Chinese audiences as the tensions escalated. This retaliatory measure further underlined the increasingly global nature of the trade dispute, which has reached beyond traditional goods and into cultural sectors, adding an additional layer of uncertainty to the market.

Alongside the turbulence in the equity markets, bond markets also showed signs of stress, adding to the economic uncertainty. Earlier in the week, US Treasury yields surged, signaling concerns over rising inflation and the potential for higher borrowing costs. The increase in Treasury yields was one of the factors that contributed to the market sell-off, as rising rates can lead to higher costs for businesses and households, which in turn may slow down economic activity. However, after Trump’s announcement on the tariff pause, the 10-year Treasury yield initially dropped to 4.30%, a relief to some investors.

Despite this initial drop, bond yields began to climb again later in the day, reaching 4.39%. This reflected the continued volatility in financial markets and the uncertainty surrounding Trump’s policies. For many on Wall Street, the bond market remains a key indicator of future economic conditions. The volatility also had ripple effects on international markets. European and Asian stock indexes surged after the announcement of a tariff pause, with Japan’s Nikkei 225 climbing 9.1%, South Korea’s Kospi rising 6.6%, and Germany’s DAX returning 4.5%. These rallies were seen as a sign of optimism, as investors hoped for a resolution to the trade conflict, even if that remains uncertain.

The continued uncertainty surrounding US trade policy and its broader economic implications means that market volatility is likely to persist in the coming weeks. Wall Street’s focus remains on Trump’s next moves and how they will shape not just the future of US-China relations, but also the global economic landscape. Investors will be closely monitoring developments, knowing that the economic consequences of these ongoing trade tensions could be far-reaching.