Global stock rout deepens as Trump’s effective tariff rate hits highest level in over 100 years. Who’s suffering most?

Global stock market rout: Following a massive carnage on Wall Street last week, Asian markets mirrored the trend in Monday's trade, with stocks in India, China, and Japan witnessing a sharp selloff. Investors' worries grew about Donald Trump's trade actions, seen as potentially bringing the global economy to its knees, prompting investors to extend their risk-off stance, causing equities to bleed relentlessly.

All major Asian markets opened in deep cuts in today's trade, April 07, with the Indian stock market being no exception as both the Nifty 50 and Sensex plunged over 5% at intraday lows. Hong Kong led the regional losses, with the Hang Seng Index tumbling 11.60%, while China’s CSI 300 dropped 7.5%.

The Nifty 50 opened with a 1,146-point cut, or 5% down, at 21,758 — marking its biggest intraday loss since March 2020. Its peer, the Sensex, also opened with a sharp decline of 5.19%, at 71,449.

Meanwhile, the US markets bore the brunt of Trump’s sweeping tariffs, as the S&P 500 has lost $5.4 trillion in market value in last two trading sessions, sending the index to hit an 11-month low. The tech-heavy Nasdaq has entered bear market territory, while the Dow Jones Industrial Average is now down 15% from its recent peak.

Trump's second term, same strategy, but sharper tariff blades

‘Tariffs,’ are the only way to bring prosperity back to America and make the country great, has been the mantra chanted by U.S. President Donald Trump since he returned to the White House in mid-January.

Within weeks of taking charge, Trump unleashed his tariff weapon for the second time as he did during his first term in office — but this time, he sharpened the blade even more, targeting almost 95% of all countries on the planet, even including territories near Antarctica inhabited only by penguins.

In his initial move, Trump targeted the country's largest trading partners, including Mexico, Canada, and China, which account for 16%, 14%, and 11% of America’s total trade, as of September 2024, according to the data from the US Census Bureau.

He then expanded the list on April 02, bringing more countries to his tariff boundaries, by announcing reciprocal tariffs (which are trade duties imposed by a country in response to tariffs levied by another country, aiming to equalize the trade conditions between them), on all major trading partners, including India, wielding his tariff weapon on 180 countries, excluding Canada and Mexico.

The reciprocal policy includes a 10% baseline tariff on all imports, with significantly higher duties, reaching up to 49%, for nations running trade surpluses with the United States. These broad-based tariffs are in addition to goods-specific tariffs on steel, aluminum, and automobiles.

Trump imposed an additional 34% tariff on China's imports, which is in addition to the existing 20% announced last month, taking the total tariff rate on Chinese products to 54%. In response, China retaliated with similar 34% duties on American goods, escalating trade tensions between the world’s two largest economies to a new level.

Vietnam, which accounts for 3% of total American trade, is now subjected to a 49% tariff. India, which has a 2% share, has been targeted with 26% duties. Soon after announcing the reciprocal tariffs, markets quickly turned their focus to how the administration of President Donald Trump had arrived at the figures.

Trump’s tariff math

Trump and the White House posted a series of charts on social media detailing the tariff rates they say other countries impose on the US. The column listing those purported rates said they include the countries’ “Currency Manipulation and Trade Barriers.”

For instance, the US said China charges a tariff of 67%. The US ran a deficit of $295.4 billion with China in 2024, while imported goods were worth $438.9 billion, according to official data. When $295.4 billion is divided by $438.9 billion, the result is 67%.

According to the chart, India imposes a 56% tariff on American goods. To counter this, the US will now charge India a 26% tariff, which Trump described as a "discounted reciprocal tariff." The US also appeared to have applied a 10% levy for regions where it is running a trade surplus.

Effective tariff rate at highest level since 1902

Following the announcement of reciprocal tariffs, President Trump has raised the US effective tariff rate to its highest level since 1909. When Trump returned to office earlier this year, the effective tariff rate stood at 2.4%. It has now ballooned to between 20% and 30%, according to various reports.

According to global credit rating agency Fitch Ratings, the imposition of a minimum tariff rate of 10% on all US trade partners—along with significant additional hikes on a subset of 57 countries—has pushed the effective tariff rate (ETR) to about 20% for imports from the EU and around 64% for China, exceeding the March estimates of 15% and 35%, respectively.

"We estimate the changes will raise the overall US effective tariff rate to about 25%, significantly higher than the 18% we had assumed for 2025 in the March GEO, and the highest rate since 1902," Fitch said in its latest note.

J.P. Morgan also estimates that the average US effective tariff rate will rise to around 25% from about 5%. These new levies push the effective tariff rate to the highest level in over a century.

"The Trump administration’s actions had already increased the US effective tariff rate from 2.5% to approximately 9.0%, the highest since World War II. Our initial estimates suggest that Wednesday’s announcements would raise the effective tariff rate by around 15 percentage points to approximately 25%," UBS noted in its report.

Who gets hit hardest by the higher trade duties?

Higher tariffs are ultimately borne by US consumers and corporations, as they only increase inflation and input costs. This, in turn, leads companies to cut jobs to reduce operating expenses and prompts consumers to save more and spend less, further impacting employment as the spending multiplier weakens.

The recent consumer surveys indicate that US consumers are increasingly worried about the Trump duties as they impact their purchasing power. Fitch said that recent US consumer sentiment indicators have weakened sharply against a backdrop of equity market volatility, and US consumer spending growth slowed notably in January and February.

The agency noted that tariff hikes will result in higher consumer prices and lower corporate profits in the US. Higher prices will squeeze real wages, weighing on consumer spending, while lower profits and policy uncertainty will act as a drag on business investment.

Upward pressure on goods prices from tariffs—in the context of a recent large jump in US households’ medium-term inflation expectations—means the Fed is likely to become more cautious about further rate cuts in the near term. Fitch expects these effects will likely outweigh the benefits US companies might gain from increased protection against foreign competition.

Is a recession becoming unavoidable?

The reciprocal tariffs and countermeasures have led economists to cut global growth projections for 2025 and propel them to increase the odds of the US slipping into recession in 2025.

Investment bank J.P. Morgan estimated a 60% chance of the global economy entering a recession by year-end, up from 40% previously.

UBS assigns a 30% probability to a downside scenario where the tariffs remain in place beyond 3–6 months or escalate further amid retaliatory responses, which it warns could potentially push the US economy into a recession.

Earlier, Goldman Sachs raised the probability of a US recession to 30% within the next 12 months, up from 20% in its previous outlook.

(With inputs from agencies)

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