(CN) — Stock markets went into the red around the world on Thursday as the shock of U.S. President Donald Trump’s sweeping tariffs policy set in, raising fears of a global recession as economic powerhouses China and the European Union vowed to fight back.
On Wednesday afternoon, Trump unveiled hefty tariffs against both allies and enemies while also imposing a general 10% tariff on imports into the U.S., upending decades of trade policy and effectively igniting a global trade war. Trump argues tariffs will rebuild American manufacturing and correct years of unfair global trade that he says has hurt U.S. companies.
In front of a crowd of White House officials and American blue-collar workers, Trump signed an executive order at the Rose Garden event to implement the tariffs within days. He is relying on national emergency powers to impose the import duties, a move that faces legal challenges.
China and other Asian nations were hit the hardest. Many Chinese goods face a tariff of more than 50% and high tariffs were slapped on goods from Vietnam, Thailand, Cambodia, South Korea, Japan, Taiwan, Pakistan, India and others.
The EU was hit with a 20% tariff in what was viewed by analysts as a nightmare scenario for the bloc, a major U.S. trading partner that holds a large trade surplus with the U.S.
By Thursday morning, world leaders and businesses reacted strongly to what many see as a unilateral beggar-thy-neighbor attack on the global economy that threatens to destroy the rules-based trade system built in the wake of World War II.
“President Trump’s announcement of universal tariffs on the whole world, including the EU, is a major blow to the world economy,” said European Commission Ursula von der Leyen, the EU’s chief executive. “The global economy will massively suffer.”
Von der Leyen warned that protectionism will grow as a result of Trump’s tariffs and bring with it dire consequences that will hit the poorest countries and segments of society the hardest as supply chains are disrupted and businesses struggle to cope with the uncertainty.
“Millions of citizens will face higher grocery bills. Medication will cost more as well as transportation. Inflation will go up,” she said in a statement. “There seems to be no order in the disorder. No clear path through the complexity and chaos that is being created as all U.S. trading partners are hit.”
She said the 27-nation EU bloc would react with countermeasures “to protect our interests and our businesses if negotiations fail.” But striking back at the U.S. won’t be easy for the bloc, especially if individual countries try to reach their own deals with Trump.
China, too, said it would retaliate and accused the U.S. of violating World Trade Organization rules.
“China strongly opposes the U.S.’s move and will resolutely take countermeasures to safeguard its legitimate interests,” Chinese Foreign Ministry spokesman Guo Jiakun said, as reported by Chinese media.
Trump’s announcement, which the president dubbed “Liberation Day,” was expected to force trading partners around the globe to try to make deals with the White House to lower the tariffs.
Speaking on CNN, Treasury Secretary Scott Bessent advised competitors to not immediately strike back at the U.S. and instead deal with America’s trade concerns.
“One of the messages that I’d like to get out tonight is: Everybody, sit back, take a deep breath. Don’t immediately retaliate,” Bessent said. “Let’s see where this goes. Because if you retaliate, that’s how we get escalation.”
Trump and his advisers argue the new tariffs are “reciprocal” and based on a set of barriers U.S. goods face in other countries, including not just tariffs but currency manipulation and value-added taxes. Many experts say such a formula for justifying the tariffs is mistaken.
Around the globe, stock markets fell. In the U.S., the S&P 500 was on track for its worst day since 2022, falling about 4%. The tech-heavy Nasdaq slid by about 4.5% and the Dow was off by 2.7%. The U.S. dollar also lost value compared to other major currencies. Japan’s Nikkei index and European stock markets also tumbled.
Trump, though, tried to spin the reaction of the markets as not so bad.
On his social media platform Truth Social, he wrote: “The operation is over! The patient lived, and is healing. The prognosis is that the patient will be far stronger, bigger, better, and more resilient than ever before. Make America Great Again!!!”
Howard Lutnick, his commerce secretary, took to the airwaves and defended the administration.
“The president is not going to back off what he announced yesterday. He is not going to back off,” he told CNN.
His tariffs policy has left economists in dismay because historically tariffs have proven economically troublesome and even disastrous.
But Trump and many of his closest aides in the White House ascribe to a theory that tariffs are a solution to America’s economic problems. They believe the tariffs will bring in billions of dollars in revenues, force foreign companies to move operations to the U.S. and foster homegrown industries.
Speaking on Fox News, Lutnick repeated this line of reasoning and said tariffs would lead to “the greatest renaissance of manufacturing in America” and that they would create “the most incredible set of jobs.”
Since the 1980s, Trump has talked about the need for tariffs against nations that have a trade surplus with the U.S. and he’s blasted others for imposing tariffs on U.S. goods. He says “tariffs” is one of his favorite words in the dictionary.
But most economic experts see Trump’s levies on foreign goods as wrong-headed and disastrous because they will disrupt trade, gum up complicated global supply chains, cause inflation and job losses and shrink profits. Fears are growing that Trump will usher in so-called stagflation — a situation where prices are rising but growth is flat or in decline.
In February, the Yale Budget Lab calculated that Trump’s proposals to impose tariffs that match duties set by other countries on U.S. goods, or the cost of value-added tax rates, would amount to a 13 percentage point hike in the U.S. effective tariff rate, making it the highest since 1937.
The Yale Budget Lab said the tariffs could lead to an overall hike in prices between 1.7% and 2.1%, translating to a loss of between $2,700 and $3,400 for the average household.
The Yale researchers also found that while tariffs would weaken America’s gross domestic product, they would raise between $2.7 trillion and $3.5 trillion in revenue between 2026 and 2035. Trump is looking to raise revenues to offset tax cuts.
There are concerns Trump’s trade policy may trigger a downward spiral similar to what happened in the late 1920s and 1930s when a slew of tariffs contributed to the Great Depression. Back then, governments imposed duties in the hope they would offset the economic downturn. Instead, global trade dropped precipitously and inflicted serious damage around the world.
Trump is endangering a post-war system that regulates international money flows and trade under rules set by the World Bank, the International Monetary Fund and the World Trade Organization.
Courthouse News reporter Cain Burdeau is based in the European Union.