Market carnage goes global
DURING HIS inaugural address eight years ago, Donald Trump spoke of “American carnage”. In recent days he has spread something similar across the world economy: a problem he alone could fix, in his words, has become something he alone has globalised.
The steep tariffs announced on April 2nd—and the retaliation they have provoked—are wreaking havoc. According to futures markets, the S&P 500 index of big American stocks will fall by another 2% when the market opens on April 7th. Anything over 4% by the end of the day would cap the steepest three-day fall since 1987, outstripping the worst periods after Lehman Brothers went bust in 2008 or any equivalent during the covid-19 pandemic. Similar milestones are scattered like tombstones across the market landscape. In Hong Kong the Hang Seng index fell by more than 13% on April 7th, its worst one-day fall since the Asian financial crisis of 1997.
Is Mr Trump bothered? It seems not. On his social-media network on April 4th he reposted a video claiming that he was crashing the stockmarket “on purpose”—so as to lower government-bond yields, thus allowing public debt to be refinanced more cheaply. After a weekend of golf in Florida, he gave another explanation during his flight back to Washington. “I don’t want anything to go down,” he said, with Scott Bessent, America’s hapless treasury secretary, hovering behind him. “But sometimes you have to take medicine to fix something.”
The something he wants to fix has not always been clear. Are his tariffs meant to redress a shortfall of government revenue, a lack of co-operation on drug-trafficking or unfair impediments to American exports? On April 6th the problem he emphasised was America’s trade deficits—not just the country’s overall imbalance with the rest of the world, but also its bilateral deficits with individual trading partners. Europe’s barriers to American exports, he said, had “taken a lot of our wealth away”. Even if both sides reached a hypothetical deal to remove their tariffs, it would not be enough, he argued, to make up for the unbalanced trade of the past.
He was equally uncompromising about other economies. “We have a trillion-dollar deficit with China,” he said, incorrectly. (The true figure, including services, was $263bn in 2024.) “Unless we solve that problem, I’m not going to make a deal.”
Xi Jinping, China’s leader, seems in no mood to make a deal either. On April 4th his government hit back against America’s “bullying” with commerce-destroying measures of its own. It announced an increase of 34% in tariffs on American goods, matching the hike that Mr Trump presented on April 2nd. China also subjected more American companies to investment restrictions or antitrust investigations, as well as curtailing exports to America of seven types of rare metal.
On April 7th the People’s Daily, a Communist Party newspaper, featured a stoical article about the trade war on its front page (just below the more important news that Mr Xi’s thoughts on Chinese modernisation have been translated into Spanish). The article insisted that China still has room to ease monetary policy and expand fiscal stimulus if necessary. It also claimed that the world now understands that China’s predictability makes it a safe haven against the “uncertainty” of America. “The sky will not fall,” it promised.
Investors seem to have missed the message. Once China’s markets re-opened on April 7th after a three-day weekend, they fell violently. Many stocks hit the daily downward limit of 10%. In the afternoon Central Huijin, the domestic arm of China’s sovereign wealth fund, announced that it had increased its stock holdings. That helped limit the decline to less than 8% on the Shanghai market by the close of trading. Nonetheless, the Hang Seng Tech Index, which has rallied strongly in recent months owing to renewed optimism about Chinese artificial intelligence, fell by more than 17%, its biggest drop since it was launched almost five years ago.
There was similar carnage elsewhere. Japan’s Topix index fell by over 7%, as did the Straits Times index of Singaporean stocks. The city-state is exposed to global trade: exports, many of which contain value added overseas, amount to more than 170% of its GDP. In a sombre televised address, Lawrence Wong, Singapore’s prime minister, compared America’s tariffs to the wave of restrictions on trade in the 1930s. “The global calm and stability we once knew will not return any time soon,” he said. “We cannot expect that the rules which protected small states will still hold.” In Europe the Euro Stoxx 50 fell by another 4%, bringing its decline to over 12% since Mr Trump’s tariffs were announced.
Fears of a sharp global economic slowdown are also rippling through commodity markets. The price of West Texas Intermediate crude, a benchmark, dropped below $60 per barrel, down from $71 just before the tariffs were announced.
How much pain lies ahead? Last week, brave retail investors snapped up American stocks even as they plummeted in value. According to JPMorgan Chase, a bank, individual traders bought $4.7bn in stocks during the market turmoil on April 3rd, the largest daily inflow in a decade. Will this gumption survive two days of further losses?
It seems more likely that something will break. In February American brokers reported $918bn in margin debt—loans taken on to buy securities. In a sell-off, lenders often make a margin call, demanding more collateral to cover a borrower’s losses. If they lack the cash to meet the call, even die-hard optimists will be obliged to sell. At scale, these demands can deepen a downward spiral, as forced selling drives down prices, forcing others to sell, too.
On his flight back to Washington Mr Trump was asked if there was a threshold of market pain he was unwilling to tolerate. Is there, he was asked, a “Trump put”? His reply was not promising: “I think your question is so stupid.”
Amid the global carnage, a few stocks held their ground. In Japan, Oriental Land Company fell by less than 1%. The property firm is best known for running the Tokyo Disney resort. Only Donald Duck can withstand Donald Trump. ■