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S&P 500 futures collapse in early trading as trade war erupts

April 3, 2025 (Investorideas.com Newswire) Investorideas.com, rated as a top 100 investment website for investment issues market commentary from Samer Hasn, Senior Market Analyst at XS.com

S&P 500 futures are experiencing an unusually sharp decline in the early hours of this morning, falling more than 3%, while Nasdaq 100 futures are down more than 3.5%.

US stocks are poised for a very negative opening as they anticipate the consequences of Donald Trump's announcement of sweeping tariffs, which have exacerbated concerns about the trajectory of domestic and global economic growth and prompted retaliatory actions, particularly from China and Europe.

Yesterday, on what Trump called "Liberation Day," Trump announced his plan for sweeping tariffs. These tariffs include a 10% base tariff, escalating through reciprocal tariffs based on tariffs imposed by other countries on US imports, or what Trump considers unfair trade practices. This is in addition to a 25% tariff on all auto imports.

These tariffs have renewed concerns about a slowdown in global economic growth and the deep disruption to global trade flows. For example, European Commission President Ursula von der Leyen stated that these tariffs are a blow to the global economy, which will in turn suffer massively.

These tariffs, for example, could threaten the nearly $9.5 trillion in trade and investment flowing between the United States and the European Union, according to an estimate by the American Chamber of Commerce to the European Union in March. The trade war also threatens the growth of the US economy itself, with multiple forecasts of a slowdown in GDP growth this year and the next one.

Furthermore, The Editorial Board of Wall Street Journal believes that Trump's protectionist policies could threaten to make American industries lose their competitiveness and harm exports, while the resulting monopoly will reduce the need for innovation. They also threaten to undermine the United States' economic dominance and give China an opportunity to deepen its partnerships with other countries.

The benefits of these tariffs are not yet certain and remain uncertain. Trump aide Peter Navarro said the tariffs would generate more than $6 trillion in federal revenue over the next decade. This figure appears to be based on simple math. According to the Washington Post, this figure, which is calculated by multiplying the value of $3 trillion in imports to the United States by 20% of the tariffs - before Trump's announcement yesterday - would be inaccurate because consumers may reduce their purchases of imported goods due to higher prices.

The tariffs announced yesterday could also be a prelude to a broader trade war, with threats of retaliatory action. For example, China has threatened to consider retaliation to the tariffs - which will exceed 50% of its imports - which could include targeting politically sensitive US imports such as agricultural goods and imposing further restrictions on US companies and exports of raw materials, according to The Post. The European Union has also threatened to consider retaliatory measures.

This combination of the potential harm and dubious benefits of tariffs, along with fears of a broader escalation and retaliation, could leave the stock market under further pressure and push it ever closer to bear market territory if recession fears materialize.

This week's data, both the ISM Non-Manufacturing PMI and tomorrow's jobs figures, could help markets gauge business sentiment amid this all-out trade war. Uncertainty about the consequences of the trade conflict could be reflected in declining demand and increased pessimism among businesses, which could lead them to be cautious about adding jobs, deepening the economic stagnation even before the tariffs take effect - previous surveys and readings have also indicated this.

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