US stocks sag amid escalating trade war with China

US stocks sank sharply on Thursday, giving back some of the huge gains that followed President Donald Trump's decision on Wednesday to postpone many of his sweeping tariffs on dozens of countries, as investors assessed the status of his global trade war and the impact of even harsher levies on China.

The S&P 500 index was down 4.0% on Thursday afternoon, while the Nasdaq dropped 4.8% and the Dow Jones Industrial Average was down 2.8%.

The European Union said it would pause its first counter-tariffs, and more than a dozen countries have made offers to the United States, according to White House economic adviser Kevin Hassett.

Trump's sudden decision on Wednesday to freeze most of his hefty new duties for 90 days had brought temporary relief to battered markets and anxious global leaders, even as he ratcheted up a trade war with China.

But Trump's whipsaw approach has companies still worried about the potential fallout and scrambling to prepare for what could happen in three months.

His turnabout, less than 24 hours after the tariffs kicked in, followed the most intense episode of financial market volatility since the early days of the COVID-19 pandemic.

The EU had been due to launch counter-tariffs on about 21 billion euros ($23.25 billion) of US imports next Tuesday in response to Trump's 25% tariffs on steel and aluminium. It is still assessing how to respond to US car tariffs and the broader 10% levies that remain in place.

"We want to give negotiations a chance," European Commission President Ursula von der Leyen said on X.

But she warned that the counter-tariffs could be reinstated if negotiations "are not satisfactory."

The Trump administration is close to reaching agreements with some countries, Hassett told reporters at the White House on Thursday.

"USTR has informed us that there are maybe 15 countries now that have made explicit offers that we're studying and considering and deciding whether they're good enough to present the president," Hassett added, referring to the U.S. trade representative.

At an afternoon Cabinet meeting, U.S. Treasury Secretary Scott Bessent said striking deals with other countries would bring more certainty to trade policy, and downplayed Thursday's selloff.

"I don't see anything unusual," he said of the day's market activity.

The US and Vietnam agreed to begin formal trade talks after Bessent spoke with Vietnamese Deputy Prime Minister Ho Duc Phoc, the White House said.

Thursday's stock market decline came despite US data showing consumer prices fell unexpectedly in March. But the improvement in inflation is unlikely to persist if punishing tariffs on Chinese goods remain in place.

Trump kept the pressure on China, the world's No. 2 economy and second-biggest provider of US imports, by increasing tariffs on Chinese imports even higher to 145% in response to Beijing's own 84% counter-tariffs.

The rollback on the other tariffs did little to lower the overall average import duty rate, according to Yale University researchers. The average effective tariff rate is the highest in more than a century, the Yale Budget Lab wrote on Thursday.

The Treasury on Thursday reported that gross customs duties in March totaled $8.75 billion, up by about $2 billion from a year earlier and the highest since September 2022. The increase is partly due to Trump's tariff increases since February, a Treasury official said.

The budget results indicate that Trump's recent statement that the U.S. was now collecting $2 billion a day from his tariffs is an overstatement.

China trade war

US stock indexes had shot higher on Trump's Wednesday announcement, and the relief continued into Asian and European trading on Thursday.

Before Trump's U-turn, the upheaval had erased trillions of dollars from stock markets, raised fears of recession and led to an unsettling surge in U.S. government bond yields that appeared to catch Trump's attention.

Clay Lowery, a former senior Treasury official and executive vice president of the Institute of International Finance, said Trump's reversal reflected concern that investors were taking assets out of both the stock market and Treasuries.

"The 10-year Treasury yield was going up, and it was going precipitously," he said. "That was the catalytic event. Having volatility in the markets, OK, but we're not trying to create a financial crisis or financial stability problem here."

China rejected what it called threats and blackmail from Washington.

China will follow through to the end if the U.S. persists, Commerce Ministry spokesperson He Yongqian told a regular press briefing. China's door was open to dialogue, but this must be based on mutual respect, the ministry said.

Beijing may again respond in kind after already imposing 84% tariffs on US imports on Wednesday to match Trump's earlier salvo.

Trump, who claims the tariffs aim to fix US trade imbalances, said at Thursday's Cabinet meeting that he thinks the U.S. and China will work out "something that's very good for both countries."

China's yuan hit its lowest level against the dollar on Thursday since the global financial crisis.

In Europe, euro zone government bond yields jumped, spreads tightened and markets scaled back their bets on European Central Bank rate cuts after Trump's latest announcement. European shares surged.

The US tariff pause does not apply to duties paid by Canada and Mexico, because their goods are still subject to 25% fentanyl-related tariffs unless they comply with the US-Mexico-Canada trade agreement's rules of origin.

Since Trump unveiled his tariffs late on Wednesday, S&P 500 companies have lost almost $6 trillion in stock market value, a record four-day decline for the benchmark going back to the 1950s

Oil prices retreated by more than 3% on Thursday as fears of a deepening US-China trade war and a possible recession eclipsed earlier relief created by Trump's pause announcement.

Some central bankers also remained cautious.

European Central Bank policymaker Francois Villeroy de Galhau told France Inter radio it was "less bad news" than before, but that ongoing uncertainty remained a threat to trust and growth.