On April 4, the US stock market witnessed a dramatic selloff, wiping out an astonishing $2.4 trillion in a single day from S&P 500 companies. It marked the steepest one-day decline in US markets since the COVID panic of 2020, Google Finance data showed.
The Nasdaq Composite Index fell the most since March 2020, while the S&P 500 and Dow Jones Industrial Average saw their sharpest drops since June 2020, according to Google Finance. But what was the trigger? A reciprocal tariff announcement by President Donald Trump, once again shaking up global trade dynamics.
Let’s break down what happened and why. Also understand the meaning of tariffs, what they are, and how they have impacted not just the US market but other countries, asset classes, and businesses.
What is a Tariff?
A tariff is a tax imposed by a government on goods imported from another country. The idea is to make imported goods more expensive so that local alternatives look cheaper, encouraging people to "buy domestic."
But while tariffs may help protect local industries in theory, they often raise costs across the board. This is because:
- Many US companies rely on imported raw materials or components.
- If the costs rise, companies either pass it on to consumers (through higher prices) or absorb it, affecting their profits.
- In either case, business suffers, especially in sectors like electronics, automobiles, retail, and fashion.
What is a Reciprocal Tariff?
A reciprocal tariff means matching the tariff another country imposes on your exports. For instance, if China taxes US goods at 25%, Trump’s plan is to tax Chinese goods at the same rate or higher. It is almost like saying: "If you make our stuff expensive in your country, we will do the same to yours." But critics argue this leads to tit-for-tat policies that spiral into trade wars, with both sides losing.
Why did the US market crash?
The sudden slide in the US market was largely triggered by Donald Trump’s sweeping trade tariff announcement. Starting April 5, a 10% base tariff will be imposed on nearly all US imports. But the more shocking part came with the additional "reciprocal tariffs" – custom rates on countries based on how they tax US exports.
Some of these reciprocal tariffs were as high as:
- 46% on Vietnam
- 34% on China
- 26% on India
These were not just symbolic. Investors fear that the move could ignite a full-blown trade war, choking global supply chains, raising prices for businesses and consumers, and dragging the world economy toward a recession. As panic set in, investors dumped stocks, especially those heavily reliant on imports or global supply chains. The result: A trillion-dollar rout.
Goldman Sachs has called Trump’s tariffs a serious threat to global economic growth. They also warned the US Federal Reserve may have to cut interest rates more aggressively to support the economy.
The World Trade Organization (WTO) estimated the new tariffs could shrink global trade by 1% by 2025. This warning further spooked Asian markets, already under pressure from slow recovery and weak exports.
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The impact of tariffs was not limited to headlines, it slashed hundreds of billions in market value from some of the world's and America’s biggest corporations. Here’s a look at how five of the largest tech companies were hit:
To put it in perspective, Apple alone lost more in value than the entire market cap of Coca-Cola. Nvidia’s loss of $220B was larger than the annual GDP of countries like Greece or Portugal.
These companies depend heavily on global supply chains, particularly in Asia, where many of their components are made. Tariffs raise costs and hit margins.
Footwear and apparel stocks take a hit
Some sectors got hit especially hard, like footwear and clothing. Many top US brands manufacture heavily in China and Vietnam, the two countries facing the steepest tariffs. Trump’s 34% tariff on China and 46% on Vietnam created an instant shockwave.
According to the Footwear Distributors and Retailers of America, nearly one-third of all US footwear imports in 2023 came from Vietnam, the highest among all countries. Nike, for instance, gets about half of its footwear from China and Vietnam combined, with around 25% specifically from Vietnam.
These countries are deeply embedded in the US fashion supply chain:
- Deckers Brands (parent of Ugg and Hoka) has 68 suppliers in Vietnam, second only to 125 in China.
- VF Corp (which owns The North Face, Vans, Timberland, and Jansport) sources 55% of its products from China and Vietnam, 38% from China and 17% from Vietnam
Here's how these stocks fared following the tariff announcement:
| Company | M-Cap | 1-day loss |
| Nike | $82.6B | $13.9B |
| Deckers | $15.3B | $2.6B |
| VF Corporation | $4.5B | $1.8B |
| Adidas (Global) | $34.2B | $5.2B |
When production costs rise sharply due to tariffs, so does investor fear.
Tariffs rattle US dollar, other asset classes
The selloff was not just limited to stocks. The ripple effects were felt across currencies, bonds, and volatility indexes.
- The US Dollar, expected to gain from Trump’s nationalistic trade stance, fell below 102 – with the Bloomberg Dollar Index marking its biggest one-day decline ever.
- The Cboe Volatility Index (VIX) surged 40% in one day, hitting 30 – its highest since the banking turmoil of 2023.
- US 10-year bond yields fell to 4.03%, as investors rushed to safety.
The decline of the dollar has puzzled economists. Typically, the dollar strengthens during global turmoil. But this time, the “homegrown nature” of the crisis has made even the dollar a risky bet.
Experts agree that a period of prolonged uncertainty is ahead for global markets, including US markets. With a trade war now underway, and expected retaliatory tariffs from China, the EU, and others, the outlook for global trade and economic growth has become increasingly fragile. Most analysts believe the situation will worsen before it improves, with a global slowdown seen as almost unavoidable in the current environment.
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