During the last two days of last week, U.S. stock markets plummeted as a result of the implementation of a tariff program that was not only non-reciprocal, but was applied using a formula that resulted in the most severe tariffs 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 departs from traditional reciprocal tariffs, which typically involve the equalization of foreign tariff rates. Instead, it appears designed to reduce the U.S. trade deficit by increasing the cost of imports, apparently incentivizing domestic production while severely disrupting supply chains.
The tariffs imposed by President Donald Trump in April 2025 have raised the average effective U.S. tariff rate to approximately 22 percent, the highest level recorded since 1909. This escalation exceeds tariff rates set under the Smoot-Hawley Tariff Act of 1930 , which previously set average duties at around 20 percent. Surpassing both the protectionist measures of the early 20th century and those implemented during World War II, the current tariff regime represents the most severe and comprehensive imposition of trade barriers in more than a century. An indication of how broadly and haphazardly the new tariffs were inflicted is evident in their application to desolate and economically marginal areas, including remote and essentially trade-free political entities such as Norfolk Island.
From the "Liberation Day" announcement after the market close on April 2 to the close on April 4, the S&P 500 fell from 5,670.97 to 5,074.08, a drop of approximately 10.5%. (This is the stock market's first drop since March 16, 2020 and only the second since the October 1987 drop ). The Nasdaq 100 entered bear territory, falling 21 % from its all-time high, while shares of the Magnificent Seven posted their worst week since March 2020 with a loss of 10.1 %. Treasury yields fell below 4% for the first time since October as investors flocked to safe-haven assets, but the bond rally faltered on reports of countries willing to negotiate a tariff reduction.