Wall Street had long assumed Trump would use tariffs merely as a tool for negotiations with other countries, rather than as a long-term policy. But Wednesday’s announcement may suggest Trump sees tariffs more as helping to solve an ideological goal than as an opening bet in a poker game. Trump on Wednesday talked about wresting manufacturing jobs back to the United States, a process that could take years.

If Trump follows through on his tariffs, stock prices may need to fall much more than 10 per cent from their all-time high in order to reflect the recession that could follow, along with the hit to profits that US companies could take. The S&P 500 is now down 11.8 per cent from its record set in February.

“Markets may actually be underreacting, especially if these rates turn out to be final, given the potential knock-on effects to global consumption and trade,” said Sean Sun, portfolio manager at Thornburg Investment Management, though he sees Trump’s announcement on Wednesday as more of an opening move than an endpoint for policy.

Trump offered an upbeat reaction after he was asked about the market’s drop as he left the White House to fly to his Florida golf club on Thursday.

“I think it’s going very well,” he said. “We have an operation, like when a patient gets operated on and it’s a big thing. I said this would exactly be the way it is.”

One wild card is that the Federal Reserve could cut interest rates in order to support the economy. That’s what it had been doing late last year before pausing in 2025. Lower interest rates help by making it easier for US companies and households to borrow and spend.

Yields on Treasurys tumbled in part on rising expectations for coming cuts to rates, along with general fear about the health of the US economy. The yield on the 10-year Treasury fell to 4.04 per cent from 4.20 per cent late Wednesday and from roughly 4.80 per cent in January. That’s a huge move for the bond market.

The Fed may have less freedom to move than it would like, though. While lower rates can goose the economy, they can also push upward on inflation. And worries are already worsening about that because of tariffs, with US households in particular bracing for sharp increases to their bills.

The US economy at the moment is still growing, of course. A report on Thursday said fewer US workers applied for unemployment benefits last week. Economist had been expecting to see an uptick in joblessness, and a relatively solid job market has been the linchpin keeping the economy out of recession.

A separate report said activity for US transportation, finance and other businesses in the services industry grew last month. But the growth was weaker than expected, and businesses gave a mixed picture of how they see conditions.

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Worries about a potentially stagnating economy and high inflation knocked down all kinds of stocks, leading to drops for four out of every five that make up the S&P 500.

Best Buy fell 17.8 per cent because the electronics that it sells are made all over the world. United Airlines lost 15.6 per cent because customers worried about the global economy may not fly as much for business or feel comfortable enough to take vacations. Target tumbled 10.9 per cent amid worries that its customers, already squeezed by still-high inflation, may be under even more stress.

All told, the S&P 500 fell. 274.45 points to 5,396.52 The Dow Jones Industrial Average sank 1,679.39 to 40,545.93, and the Nasdaq composite tumbled 1,050.44 to 16,550.61.

In stock markets abroad, indexes fell sharply worldwide. France’s CAC 40 dropped 3.3 per cent, and Germany’s DAX lost 3 per cent in Europe.

Japan’s Nikkei 225 sank 2.8 per cent, Hong Kong’s Hang Seng lost 1.5 per cent and South Korea’s Kospi dropped 0.8 per cent.

AP, Bloomberg

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