S&P 500

Overview for April 8

US market: real reason behind Trump's tariffs revealed. Part 1

Major US indices on Monday: Dow -0.9%, NASDAQ +0.1%, S&P 500 -0.2%, S&P 500: 5,062, trading range: 4,800–5,700.

Hot tariff headlines: On Monday, April 7, Trump announced that he would impose an additional 50% tariff on Chinese imports if China does not cancel by April 8 its 34% retaliatory tariffs imposed in response to his own 34% and earlier 20% tariffs.

By Tuesday morning, China had already responded, stating it would not yield to US pressure and would not reverse the tariffs imposed in retaliation. No US-China negotiations are scheduled for now, with both sides reaffirming their hardline stance.

Goldman Sachs has raised the probability of a US recession to 45% within the next 12 months, joining a growing list of investment banks revising their outlooks. Economists at JPMorgan now estimate that the tariffs will shave 0.3% off US GDP, a notable downgrade from earlier projections of 1.3% growth.

Taiwanese stocks plunged nearly 10% on Monday, marking the largest single-day drop in history, while equity futures pointed to yet another rough session for US markets. In Hong Kong, stocks fell 13% in a day, triggering a trading halt. Shares of AliExpress plummeted 19% within 24 hours.

European defense stocks, which had previously outperformed amid expectations of a sharp rise in government spending, are now on track for their biggest one-day drop since April 2020.

US Treasury Secretary Scott Bessent said more than 50 countries have initiated talks with the United States since last Wednesday's announcement. Commerce Secretary Howard Lutnick noted that the tariffs would remain in place "for several days and weeks."

Commenting on the massive drop in US markets, President Trump stated on Sunday that his administration is ready to make a deal with countries seeking tariff relief, but only after they pay "a lot of money to the US both annually and retroactively." If that stance remains firm, it is unlikely the talks will succeed. It is hard to imagine China or the EU agreeing to retroactive payments for past trade deficits, a demand typically seen only after wartime defeat.

As of Monday morning, total market capitalization losses in the broad S&P 1500 index had reached $9.8 trillion.

Conclusion: There is nothing inherently wrong for the US when many countries want to ship their goods stateside and receive dollars in return. That dynamic is, in fact, highly beneficial for America.

What is problematic is that those same exporters then buy US government debt, which incurs interest payments—now totaling up to $800 billion annually, rivaling defense spending as the largest item in the federal budget. That is due to the US national debt standing at around $37 trillion. It is important to note that the problem is not the size of the debt — it is the cost of servicing it. Imagine if a law were passed that lowered the interest rate to 2% or even 1.5% per year. Such a move would trigger massive outflows from Treasuries, widespread bond selling, and inevitably a sharp collapse in the dollar. At that point, the US trade deficit would quickly vanish. So Trump's tariff moves are not as irrational as they might seem at first glance. Still, ideally, such maneuvers should be coordinated with America's top allies within the G7.

P.S. On Tuesday morning, just after this review and its conclusions were finalized, news broke that Trump stated that the new tariffs would allow the United States to pay off its national debt.