Global Stocks Plunge for Second Day as China Strikes Back Against Trump’s Tariffs

Global stocks nosedived on Friday after China’s imposition of a 34% tariff on all US goods, which threatens to dash hopes of a negotiated resolution to the standoff. Government bond yields fell sharply as investors sought out safe-haven assets for a second day.

China’s retaliatory action comes after President Donald Trump on Wednesday evening announced sweeping new tariffs on dozens of countries in a dramatic overhaul of US trade policy, the scope of which took many investors by surprise.

The Morningstar US Market Index fell 3% after plunging more than 5% on Thursday. Stocks have fallen an eyewatering 8.12% since Thursday’s open. The S&P 500 benchmark was 2.28% lower on Friday, while the tech-heavy Nasdaq dropped 3.28%.

The current rout is the market’s worst since the covid-19 pandemic in 2020. After two years of supercharged gains in 2023 and 2024, stocks floundered in the first quarter of 2025 amid tariff threats and mounting signs of an economic slowdown.

US mega-cap stocks were lower across the board on Friday, including Nvidia NVDA down 4.41%, Apple AAPL down 2.92%, and Tesla TSLA down 4.96%.

Losses continued to mount across every sector and every corner of the Morningstar Style Box. All 11 stock market sectors were in the red on Friday.

The US 10-Treasury yield reached 3.92%, its lowest level since the beginning of last 2024. It was hovering at 4.20% before the Trump tariffs were announced.

Against that backdrop, traders have ratcheted up their bets that the Federal Reserve will cut interest rates at there may meeting in order to support the economy. They now see a roughly 37% chance of a cut next month, up from 22% on Thursday, according to the CME FedWatch tool.

European Stocks Fall

The Morningstar Europe Index fell more than 4% during afternoon trading, dwarfing the previous session’s declines, with banks and cyclical industries falling the most. Societe Generale GLE and Banco de Sabadell SAB led the sector lower with declines of about 12%, while Deutsche Bank DBK, UniCredit UCG, and Barclays BARC each fell about 10%.

For Michael Field, chief European market strategist at Morningstar, China’s tariffs will have a significant impact: “That China is the first nation to retaliate after the ‘liberation day’ tariffs is no surprise, given it was the target of some of the harshest US measures. The move by China could be a stroke of genius, given that the main US export to China is crops and seeds, a low-margin business that will be devastated by the new measure, putting further pressure on the US administration to come to the table.

“For Europe, this move has positives and negatives. Positive in that it now allows the EU to announce retaliatory measures without being the first nation to do so. Negative in that it simply inflames the growing global trade war, making things worse for companies here. Expect further announcements in the coming weeks, the worst is yet to come.”

Flight to Safety Depresses Bond Yields

Government bond yields across the globe have fallen further on Friday as prices have increased because investors looking for safe assets amid the selloff were boosting demand.

The German 10-year bund yield is down almost 5% from a day earlier to 2.5% after reaching a peak of 2.9% in the first half last month. Italy’s 10-year BTP government bond is down 1.7% to 3.7%.

Could There Still Be a Deal?

After Trump’s announcement of sweeping tariffs late Wednesday, which presented a “worst-case” outcome in terms of their extent, the initial reaction on global equity markets was mixed as many observers held onto hope for a watered-down final structure as US trade partners offer concessions, and a flight to havens boosted some segments of the market.

Just hours before China’s retaliatory step, Trump indicated openness to blunting the blow of his tariffs if concessions are made. “If somebody said that we’re going to give you something that’s so phenomenal, as long as they’re giving us something, that’s good,” the president told reporters on board Air Force One.

China’s steep retaliatory tariff may be the first blow in a tit-for-tat dynamic that could leave global trade hamstrung and drive inflation while stifling economic growth.

European Defensives Fall, But Outperform

While utilities and some healthcare stocks defied Thursday’s selloff amid a flight to safety, these sectors are now also in the red, with the Stoxx 600 Utilities sector index giving up most of the previous session’s gains and falling nearly 2%. That compares favorably to the broader Stoxx 600 benchmark’s 5% decline.

European aerospace and defense stocks, a sector that has experienced a steep rally this year as Trump cast doubt on the future of the trans-Atlantic alliance, and which also defied Thursday’s selloff, fell sharply on Friday. Italian defense champion Leonardo LDO led declines with a 10% decline while peers BAE Systems BA. and Thales HO each fell 5% and Germany’s Rheinmetall RHM traded 3% lower.

Sara Silano, Sunniva Kolostyak and Valerio Baselli contributed to this story.