The Trade War Trapdoor
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Stocks crashed today for no apparent reason. Try as they might, analysts couldn’t pinpoint a catalyst, then stumbled upon a trade policy proclamation from the White House yesterday. That might have been it.
Level Change 4/3/25 (%)
– – – – – – – – – – – – – – –
-4.0 Dow
-6.0 Nasdaq
-5.4 Nasdaq 100
-4.8 S&P 500
-6.7 S&P 400
-7.1 S&P 600
Indeed the worst crash since covid was all about President Trump’s “Liberation Day” tariff announcement landing heavier than expected. Making the 1930 Smoot-Hawley effort look like a bake sale, he raised America’s tariff wall by sevenfold, to an average import duty of nearly 23%, up from a quaint 3%.
According to the World Trade Organization, here’s the new landscape, before retaliatory fun begins:
Average Tariff Rates (%)
– – – – – – – – – – – – – – –
23 USA
12 India
8.4 South Korea
6.7 Brazil
6.3 Thailand
6.1 Saudi Arabia
6.0 Chile
5.3 Russia
5.1 Vietnam
3.9 Mexico
3.4 Canada
3.3 UK
3.0 China
2.7 EU
1.9 Japan
The VIX volatility gauge took one look at that and vaulted like a biotech stock with a rumor and no revenue, surging 40% from 21.5 to 30.
Wall Street’s dunk tank was set extra deep. The S&P took its worst drenching since June 2020, when second-wave covid fears spiked sanitizer sales. The Dow notched its fourth-biggest decline this decade. The Nasdaq fell its most since March 2020, when the Fed cut interest rates to near zero, confirming there was something to be nervous about.
Small-cap stocks officially entered bear-market territory, with the S&P 600 now down 21.9% from its November 25 peak, the very month when now-Treasury Secretary Scott Bessent penned his Wall Street Journal valentine to “Trump’s Economics.” In it, he credited the post-election rally to “expectations of higher growth, lower volatility and inflation, and a revitalized economy for all Americans.” From last Sunday’s Kelly Letter: “Nothing crashes harder than high hopes…”
Retaliation threats are stacking up faster than disclaimers in a crypto prospectus.
China vowed a stiff response unless the tariffs are lifted. Canada, keeping it neighborly, will match the 25% auto tariffs tit-for-tat with an equal levy on American vehicles. The EU is calibrating a response. France’s prime minister called the tariffs “a catastrophe for the economic world.” From a country that’s handled downturns with decapitation, that’s saying something.
Mexico, however, twirled into a hat dance after being spared the rod, one of the few free-trade partners to dodge it. Avocado toast is safe, and really, isn’t that what counts?
The Trump administration remains serenely convinced that the duties dragnet will yield lasting economic bounty. Commerce Secretary Lutnick assured CNN viewers that Trump will not back down from this “reordering of global trade.” The president himself told reporters, “The markets are going to boom.”
Bears replied, “Oh, there was a boom, all right.” They doubled down on stagflation warnings, brushing off the idea that recent declines have priced in the damage. No, they say, 2025 earnings estimates show valuations have plenty of altitude left to lose. Beatings will continue until ratios improve.
Fedspeak played along. Vice Chair Philip Jefferson detected uncertainty in the air and craves more data. Fed Governor Lisa Cook foresees lower growth and higher inflation, citing “tariffs and other policy changes.”
Let the trade negotiations begin, before the damage requires a stimulus package and a cold compress.
— Jason Kelly
You know, the market’s always this topsy-turvy. Stop trying to guess what comes next and start reacting to what’s already happened. Learn how at jasonkelly.com.
