US Stocks Sink on Renewed China Tariff Threats

Key Takeaways

• US equity markets fell sharply on Friday, with the US Market Index down 2.7% and large-cap technology stocks seeing the biggest losses.
• The losses followed President Trump’s announcement that the White House is considering new tariffs on Chinese products.
• Stocks are up more than 15% since the start of the year.

US equity markets plunged on Friday after new comments by President Donald Trump suggested an escalation in trade tensions between the United States and China.

“One of the Policies that we are calculating at this moment is a massive increase of Tariffs on Chinese products coming into the United States of America,” Trump wrote Friday on social media. He described China as “very hostile” and signaled that he would skip a planned meeting with the Chinese president.

The Morningstar US Market Index closed 2.7% lower on Friday—its worst day since April 10, when it tumbled 3.55% as investors struggled to adjust to a rapidly changing outlook after Trump announced his new tariff regime.

The S&P 500 fell 2.7% Friday, while the tech-heavy Nasdaq closed 3.6% lower. Within the Morningstar Style Box, large-cap technology stocks were among the hardest hit, with losses of 3.36%.

Friday’s losses follow a blistering rally in equities that has steadily gained steam since the market bottomed out on April 8. Including dividends, stocks are up more than 15% since the start of the year and up more than 60% over the past three years.

Recently, those gains have been fueled by investors’ seemingly insatiable appetite for artificial intelligence technology and growth, along with an apparent cooling in trade-related tensions. An accommodative Federal Reserve, which in September cut interest rates for the first time in a year, may have also pushed stocks higher in recent weeks. Traders expect more rate cuts before 2026.

The gains have also come despite a slew of risks in the outlook, including stretched valuations, stubborn inflation, a weakening labor market, and ongoing uncertainty surrounding the US fiscal deficit and trade policy.

Strategists say that for now, market fundamentals remain sound despite the noisy headlines. “Threatening significantly increased tariffs on China is a hallmark of Trump’s negotiating tactics,” says Charlie Ripley, senior investment strategist for Allianz Investment Management, in emailed commentary. “For investors, it’s important to recall that big threats don’t always turn into big actions. Despite the severity of today’s selloff, the shift in sentiment on US trade relations with China is unlikely to upend the fundamentals supporting the market’s recent runup.”