US president Donald Trump has unleashed chaos in markets by announcing sweeping “Liberation Day” tariffs. The S&P 500 has shed more than 10% since tariffs were announced, and is expected to plunge further when markets open today (Monday, 7 April).
Asian markets experienced a bloodbath during trading hours on Monday, with the Hang Seng plunging more than 13%, the Shanghai Composite more than 7%, and the Taiex almost 10%. European markets followed suit, selling off dramatically at market open.
Investors have been spooked by aggressive tariffs imposed in the US, which threaten to push inflation up and pour ice water on economic growth. Trump has imposed a 10% “baseline” tariff on most foreign imports into the US, with more aggressive measures for countries with a large trade deficit with the US.
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The most punitive measures have been targeted at those Trump deems the “worst offenders”. Sixty countries will be hit with higher taxes of up to 50%. China will be slapped with a 34% tariff rate, Japan with 24%, and the European Union with 20%. The UK will be hit by the 10% baseline tariff.
The measures threaten to make a substantial dent in global trade.
“It’s rare to see double-digit falls in a single day for a major stock index, yet today is one of those days that will go down in history,” said Russ Mould, investment director at platform AJ Bell. “This market sell-off feels brutal because it is relentless. Often, we see one or two bad days then a rebound. We’re now on day three and the sell-off is intensifying, not dying down.”
“Fundamentally, investors are worried about a big hit to corporate earnings and a massive slowdown in economic growth. The potential end of globalisation throws up more questions than answers and that uncertainty is causing havoc on the markets,” he added.
What are tariffs and why have they caused markets to crash?
Tariffs are import taxes that make it more expensive to buy foreign goods. They are often imposed as part of a protectionist policy to encourage consumers to buy goods that are manufactured on home soil. Tariffs are paid by the company that imports the goods, but importers typically pass the cost on to consumers by building it into their prices.
Donald Trump claims tariffs will be good for the US economy. He has persistently criticised the trade deficits in place between the US and trading partners. As well as encouraging consumers to buy domestic products, tariffs could raise up to $835 billion in additional customs duties, according to consultancy Capital Economics. Its economists point out that this figure will probably end up closer to $700 billion once the resultant decline in imports is factored in.
However the broader picture is more complex.
Imposing tariffs pushes up costs for US consumers by making imported goods more expensive (as importers pay the tax). The cost of US-manufactured goods can also go up, if they include parts that have been imported from elsewhere. Tariffs also give consumers less choice. In the past, shoppers might have been able to make a saving by buying cheaper imported goods, but tariffs erode this saving.
The contagion effect of policies like this is significant, meaning it is not just US consumers that will be impacted. Global economies operate in a connected web of interdependence. As more and more countries respond with retaliatory tariffs, prices could start to rise on a global scale. Growth could also stagnate, as it becomes more expensive for companies to buy goods and do business.
“Higher friction costs on trade are ultimately bad for everyone, even countries like the UK that got off relatively lightly, as this upending of the global trade system will slow growth, possibly trigger recessions and ultimately raise costs for consumers, not least in the US itself,” said Jason Hollands, managing director at wealth management firm Evelyn Partners.
“President Trump may have some legitimate grievances about the global economic order that has existed for nearly half a century and resulted in unbalanced trade for the US, but at least in the near term, this will prove an act of self-harm as the costs of imports rise both directly and for US firms that use imported components,” he added.
Hollands points out that major firms like Apple and Tesla manufacture parts in China; sportswear company Nike sources products from Vietnam (hit with a 46% tariff); and chip giant Nvidia produces some of its chips in Taiwan (32% tariff).
“The agenda here is to pile the pain on businesses, whether foreign or American, to move manufacturing to the US. That won’t happen overnight,” Hollands added.
What do tariffs mean for your money?
Much will depend on whether Trump lifts some of the measures or offers exemptions, as he has done in the past. Markets are becoming less hopeful, though. The president doubled down over the weekend when asked to comment on tumbling stock markets, saying “sometimes you have to take medicine to fix something”.
The measures announced will impact almost every aspect of your finances, even if you are not actively trading stocks and shares. The effects of Trump’s announcements have already reverberated through the mortgage market, the savings market, and your pension.
Inflation and interest rates
If tariffs push inflation higher, you might expect interest rates to stay higher for longer, but markets have actually moved in the opposite direction in recent days to price in a faster pace of Bank of England cuts. Central banks have to balance inflation and growth concerns. Seemingly, markets are more concerned about recessionary risks.
UK economic growth
The UK is in a better position than many other economies, having been slapped with the baseline 10% levy. However, many businesses will still feel the impact, particularly when combined with domestic headwinds, like the hike to employers' National Insurance contributions. The Bank of England has already slashed its 2025 growth forecast in half from 1.5% to 0.75%.
The sad reality is that wages will probably grow more slowly and redundancies could rise.
Mortgage rates
If interest rates are cut more quickly to counteract slowing growth, mortgage rates could come down. We are seeing early signs of this already. “Swap rates have dropped, which should feed through into lower fixed rate mortgages in the coming days,” said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown. “These have already edged down since the start of 2025, and are likely to continue to do so.”
Savings rates
Savings rates will probably fall further in anticipation of faster base rate cuts. They look fairly robust for now, with providers having upped cash ISA rates to entice customers in before the end of the tax year, but expect drops over the coming days and weeks. Now could be a good time to fix your savings, if you have a pot of cash you are willing to lock away for a set period.
Pensions
Your pension has probably taken a significant hit in recent days thanks to the global stock market sell-off – but remember that investing is a long game. Market dips are typically followed by recoveries, provided you are suitably diversified and stay in the market long enough.
“At the moment, the only certainty seems to be uncertainty – but that isn’t always bad for returns,” said Miranda Seath, director of market insights at the Investment Association. “When you see volatile markets, there can be some interesting investment opportunities. We know investors will be looking at how to navigate today’s uncertain markets, but markets run in cycles, so it’s important to remember that investing is for the long-term.”
Most people will be saving into a workplace pension where the choice of investments is often managed on their behalf, but those who select their own investments may want to review their strategy to ensure they are suitably diversified.
“Many investors will now be thinking about their levels of exposure to the US markets,” Seath added. “Over the next few months, we can expect to see investors looking at other opportunities, potentially in Europe, or even in the UK.”
So-called “safe-haven” assets like gold and government bonds have also seen inflows as investors look to increase portfolio diversification.
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