The Tariff Crash Of 2025: The Price Of Economic Amnesia

2025-04-08 07:30:00 ET

Summary

• From the "Liberation Day" announcement after the market close on April 2 to the closing bell on April 4, the S&P 500 dropped from 5,670.97 to 5,074.08 - a decline of approximately 10.5 percent. The Nasdaq 100 entered bear market territory, falling 21 percent from its record high.
• The unpredictability of the tariffs, their scope, and their duration has significantly undermined investor confidence.
• Broader economic indicators are also reflecting the strain. While tariffs alone may not trigger a recession, they contribute to an environment of heightened uncertainty and diminished corporate earnings.
• Despite market turmoil, the Fed has struck a hawkish tone. Powell’s comments reinforced a “wait-and-see” approach, dampening hopes for immediate rate cuts. Meanwhile, Fed rate cut expectations have now priced in nearly four cuts by the January 2026 FOMC meeting.

By Peter C. Earle

Over the last two days of the past week, US equity markets crashed as a result of the rollout of a tariff program that was not only non-reciprocal but also applied using a formula resulting in the most severe duties since World War II. The formula calculated tariffs based on the ratio of trade deficits to total imports, penalizing countries with the largest trade imbalances. This approach deviates from traditional “reciprocal tariffs,” which typically involve matching foreign tariff rates. Instead, it appears designed to reduce the US trade deficit by raising the cost of imports , ostensibly encouraging domestic production while severely disrupting supply chains....

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