Investment Strategy
Tariff shock: A guide to the global market selloff
Global stocks tumbled as U.S. tariff rates stand to soar to their highest in over a century. Here's our take on the road ahead—and how investors can prepare.
Madison Faller
Global Investment Strategist
Published Apr 7, 2025
President Trump’s tariff announcement sent shockwaves through global markets. The sweeping hikes pushed the effective U.S. rate to around 25%—the highest in over a century, exceeding essentially all expectations.
The market moves have been seismic. After the April 2 announcement, the S&P 500 plunged 10.5% over Thursday and Friday, marking its fifth-worst two-day performance since WWII, trailing only events like COVID-19, the Global Financial Crisis, and Black Monday in 1987. The drop erased over $5 trillion in market value—equivalent to the entire economy of France. With selling expected to continue, the index teeters on the brink of bear market territory.
On this side of the Atlantic, Europe has wiped out all its year-to-date gains, also nearing bear market territory, while Monday trading saw Asian stocks suffer their worst day in 16 years.
There have been few places to hide. The U.S. dollar and gold have seen more modest declines, while bonds have rallied as recession fears grow and traders slash bets on central bank rate cuts. The market now expects five Fed rate cuts this year, implying a 3% policy rate. In turn, 10-year U.S. Treasury yields have plunged 30 basis points, dipping below 4% for the first time since October.
The situation is evolving as swiftly as it began. Below, we break down the facts as we understand them. While uncertainty abounds, one thing is clear: strengthening portfolio resilience in the face of these challenges is crucial.
The epicenter: Understanding the seismic shock
The new tariff plan imposes a 10% universal tariff on all U.S. imports, which went into effect on Saturday, April 5, with additional ‘reciprocal’ tariffs for trading partners slated for Wednesday, April 9. The steepest tariffs target countries with significant U.S. trade deficits, including an additional 34% on China, 20% on the EU, and 24% on Japan.
These measures expand on earlier tariffs, including 25% levies on steel, aluminium, and autos. However, some countries and products remain unaffected. Trade with Canada and Mexico is excluded, though non-USMCA goods still face a 25% tariff. Certain products, like critical minerals, gold, semiconductors, lumber, and copper, are also exempt as investigations continue.
Tariff rates set to rise to the highest in a century
U.S. effective tariff rate, %
Sources: Michael Cembalest, ‘Eye on the Market: Trump Tracker’; Tax Foundation, J.P. Morgan Global Economics, Goldman Sachs Global Investment Research. Data as of April 4, 2024. Note: Estimates take tariffs at face value and do not adjust for potential negotiations or exclusions. Assumes no elasticity of imports due to higher tariffs. Ignores sector specific tariffs, which are currently carved out.
The biggest questions now are how long the tariffs will stick and how countries will respond. So far, President Trump has shown no sign of backing down. While there's a brief negotiation window before reciprocal levies take effect this week, history suggests this could be messy. Countries generally fall into three categories: those likely to negotiate, those unlikely to negotiate or retaliate, and those likely to retaliate.
China has already said it plans to impose a 34% retaliatory tariff on U.S. imports starting Thursday and has added about a dozen U.S. companies to its Unreliable Entity List. The EU wants to negotiate but is expected to propose a list of U.S. products for potential levies today, alongside tariffs on $26 billion in U.S. goods from previous tariffs. Canada and Vietnam have also signalled intentions to retaliate.
All the actions that follow will define the outcome, extending well beyond trade itself.
Aftershocks: It’s all about confidence
This isn't just a trade shock; it's a confidence shock. When investors can't predict policy, despite months of trying to decipher the U.S. administration's shifting stance, forecasting the future—for the economy, corporate profits, and markets—becomes an incredibly difficult task.
Already fragile confidence took another hit with questions about the administration's tariff calculations, which starkly differed from the stated method. Instead of a mix of tariff and non-tariff barriers, the new rates seem to follow a simple rule: the higher of a 10% universal rate or the result of dividing each country’s U.S. trade surplus by its U.S. exports. That rough math suggests tariffs aim to target and cut trade deficits.
The scatterplot below highlights this divergence. While some tariffs are notably high, many target countries with minimal U.S. imports. The most significant rates impact Vietnam, Thailand, Taiwan, Switzerland, China, the EU, Malaysia, Korea, Japan, India, and the UK.
Many tariffs target countries with minimal imports
Sources: Trading Economics, Office of the United States Trade Representative, Guardian, J.P. Morgan Asset Management. Data as of April 3, 2025.
Finding fault-lines: A stress-test for the global economy
The tariff situation is a double-edged sword: reducing trade barriers could benefit the global economy in the long run, while high tariffs and potential retaliation could worsen challenges. Estimating the growth impact is tough with so many unknowns and a lack of historical precedent. Our rough calculations suggest the full current tariff policy could wipe out all anticipated real economic and S&P 500 earnings growth for this year if it remains in effect. Inflation effects are complex, as supply shocks and weaker demand may offset each other.
Initial estimates point to a 'stagflationary' effect, with the U.S. hit hardest—slowing growth and rising inflation. Persistent tariffs could slash U.S. GDP growth by 1.5-2.0%, compounding earlier tariff effects and raising recession risks. In Europe, growth might drop by about 0.5%, given tariffs' impact on 70% of the EU’s exports to the U.S. and deteriorating sentiment. The actual effects will hinge on the EU's response and negotiations. Manufacturing-heavy economies like Germany could suffer more than France or Spain. While China's tariff hike is significant, it’s notable that earlier tariffs this year have been less disruptive than past trade wars.
The unfolding tit-for-tat and policymakers' responses from both a monetary and fiscal lens will be key in mitigating negative impacts. The global shift is likely to drive monetary policy rates lower, with markets now anticipating the Federal Reserve to cut rates five times to 3.0% by year-end and the ECB to 1.5%. Some regions, like the EU or China, may intensify their fiscal stimulus efforts—headlines this morning suggest China is considering frontloading measures to boost consumer spending or establishing a stabilization fund to support the stock market.
Is this the start or the end? Resilience is crucial
The current panic is testing even the most disciplined investors. As the tariff announcement loomed, markets hoped for a turning point—a 'worst day' to clear uncertainty. That optimism was misplaced. The duration and evolution of tariffs remain unknown, with potential retaliation, ongoing negotiations, and looming U.S. debt ceiling talks and mid-term elections keeping the ground shaky.
As long as uncertainty remains high, markets are likely to reflect that risk. The selloff could still deepen, cyclically-oriented assets might struggle amid global growth concerns, and companies lacking pricing power or offering price-sensitive products may face the most pressure.
What’s an investor to do? Often, the best course for long-term investors is to stay the course. Markets have weathered many bear markets before, and historically, stocks have spent more time rising than falling.
Bull markets come and go—but the market has historically spent more time rising than falling
S&P 500 total return during bull and bear markets, %
Source: Bloomberg Finance L.P. S&P 500 total return calculated from the peak to trough for bear markets and trough to peak for bull markets. Bull market confirmed once the S&P 500 total return index reaches previous all-time high. Data as of April 1, 2025.
Nonetheless, in times of high volatility and uncertainty, it can feel like control over your investments is slipping away. For those looking to take action, there are ways to enhance portfolio resilience. This could involve reducing risk on the margin through structured notes or core fixed income—one silver lining of recent market moves is the drop in rates. Investors might also consider incorporating assets like gold and hedge funds that are less correlated to public markets or, with valuations taking a hit, adding equities as part of a broader goals-based strategy.
Ultimately, the most important thing is to invest with intention, guided by your overall financial plan. The portfolios we build are designed to weather volatility and navigate through cycles and challenges. Your JPMorgan team is here to help.
RISK CONSIDERATIONS
All market and economic data as of April 2025 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.
We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.
- Past performance is not indicative of future results. You may not invest directly in an index.
- The prices and rates of return are indicative, as they may vary over time based on market conditions.
- Additional risk considerations exist for all strategies.
- The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
- Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.
Index definitions
- S&P 500 Index: The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.
Important Information
Madison Faller
Global Investment Strategist
Published Apr 7, 2025
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