Global Stock Markets Fall Following New US Import Tariffs

Economists expect U.S. tariff rates to remain fluid, with further adjustments likely as trade talks with China and others continue.

People walk past a screen showing Chinese stock market movements in Beijing on April 7, 2025. Wang Zhao/AFP via Getty Images

International stock markets have fallen in reaction to a new wave of U.S. import tariffs aimed at protecting domestic industries and addressing long-standing trade imbalances.

European stocks dropped to a three-week low. The pan-European STOXX 600 index fell by about 3 percent on Friday, extending its weekly decline to almost 3.5 percent. It constitutes the biggest drop since the announcement of U.S. reciprocal tariffs by executive order on April 2.

Germany’s benchmark stock market index, the DAX Index, fell by more than 2.5 percent, while the FTSE 100 Index fell by just over 1 percent.

MSCI’s broadest index of Asia-Pacific shares excluding Japan, a widely tracked benchmark used by global investors to gauge regional equity performance, dropped by 1.5 percent, extending its weekly decline to around 2.7 percent.

Japan’s Nikkei fell by 0.7 percent, Chinese blue chips ended 0.5 percent lower, and Hong Kong’s Hang Seng index lost more than 1 percent.

In an executive order signed on Thursday, President Donald Trump introduced a baseline 10 percent tariff on imports, with significantly higher rates aimed at select nations.

While Mexico and the European Union avoided the steepest increases, countries such as India, South Africa, and Switzerland are facing much higher rates, based on whether they have reached agreements with the United States and the scope of those commitments.

In U.S. markets, the S&P 500 opened the day down by more than 1.5 percent in early trading.

Friday also saw the Nasdaq 100 drop in early trading by more than 2 percent.

In terms of the value of the U.S. dollar, the DXY, an index that tracks the currency against a basket of foreign currencies, declined by more than 1 percent on the day.

Domestic Impacts

UBS analysis on Friday said the average U.S. tariff rate on imports is expected to surge to more than 18 percent starting Friday, the highest level since the 1930s. It estimates that the U.S. government is now collecting $220 billion annually from the new tariffs.

However, early signs show American consumers may be feeling the impact, it said. Core inflation, excluding vehicles, rose sharply in June, hinting that some tariff-related price increases are making their way into everyday goods, the UBS added.

To manage the higher costs, U.S. companies have relied on strategies like early inventory stockpiling, reworking supply chains, sharing costs with suppliers, and adding tariff surcharges to customer prices.

JP Morgan said on Friday that despite the trade tensions, the second-quarter earnings in the United States have remained strong, with a 10 percent year-over-year growth, beating expectations.

In contrast, European earnings fell by 4 percent but still performed better than expected.

Although many investors still treat the tariffs as temporary, UBS warns that this may be overly optimistic. Its analysis suggests the economic impact could worsen in the second half of the year, potentially pressuring profits and affecting investor sentiment. UBS recommends focusing on countries with strong domestic demand and low U.S. trade exposure, including China, Brazil, Indonesia, Malaysia, and the Philippines.

Despite the challenges, UBS sees modest upside potential in emerging market equities through 2026.

Asian Economies

Export-driven Asian economies, particularly in the automotive sector, appear especially vulnerable to further U.S. import tariff hikes, with Japanese and Korean companies voicing concerns during recent earnings calls.

“For Japanese companies, I think the phase has changed from 1) everything is uncertain, to 2) building a business plan on the assumption that current tariff rates prevail,” said Norihiro Yamaguchi, lead Japan economist at Oxford Economics.

He said markets were likely to focus more on the specific impact of tariffs rather than on incremental changes going forward.

Outcomes for manufacturers will vary depending on pricing flexibility and demand from overseas, Yamaguchi said. Economists focused on Asia expect continued trade diversion and supply chain adjustments in response to the new tariff regime.

As trade talks with China and other countries remain ongoing, economists expect the United States to continue adjusting tariff rates in the months ahead.

Jeff Ng, head of Asia macro strategy at SMBC in Singapore, said the current tariffs were broadly in line with expectations, falling near the lower end of the projected 20 to 30 percent range.

“I expect that the rates will continue to be changed between now and maybe even up until next year. Trump will continue to make some changes to the tariffs,” he said.

Reuters contributed to this report.