So much for the rally.
A day after seeing their first good outing in almost a week, North American stock markets fell again Thursday as reality set in that the trade war between China and the U.S. is still growing — even after the U.S. tariff pause on the rest of the world.
In Toronto, the TSX Composite Index tumbled in the opening minutes and closed the day down three per cent wiping out more than $100 billion of stock value.
In New York, the S&P500 was down 3.5 per cent, the Dow Jones industrial average 2.5 per cent, and tech-heavy NASDAQ was by 4.3 per cent. The S&P drop wiped out roughly $1.5 trillion (U.S.) of stock value.
The loonie was also up, rising more than half a cent to 71.60 cents (U.S.). The official daily price noted by the Bank of Canada — which is based on an average of trades on the day — was 71.35 cents (U.S.), up from 70.67 cents Wednesday.
The Chicago Board Options Exchange’s volatility index, usually known by its ticker symbol VIX, also soared to 46.04 points, a rise of 36.9 per cent.
The VIX — sometimes referred to as Wall Street’s fear index — is based on futures trading, and is a gauge of expected volatility in the broad-based S&P 500 composite index. The higher it goes, the greater the expected volatility.
Thursday, the White House said that tariffs on China were even higher than previously thought — 145 per cent, rather than the already-steep 125 per cent announced earlier in the week.
Thursday’s market fall was a return to the red after U.S. President Donald Trump’s announcement Wednesday of a 90-day pause in global tariffs sparked a late-day skyrocketing of stock prices.
Wednesday’s jump came after four straight days of large stock market losses and slumping U.S. bond prices.
Overnight in Asia, markets were up, despite Trump’s decision to ramp up the trade war with China.
The Shanghai Composite Index was up 1.2 per cent, while Hong Kong’s Hang Seng Index was up two per cent. Japan’s Nikkei 225 soared and closed up 9.1 per cent.
In Europe, traders reacted positively to the news of easing tensions between the EU and the U.S.
In Paris, the CAC 40 index rose 4.8 per cent on the day while in Frankfurt the DAX performance index was up 4.9 per cent, and in London’s the FTSE 100 rose three per cent.
Trump had increased reciprocal tariffs on China to 125 per cent after China had imposed 84 per cent tariffs on imports from the U.S. earlier this week.
Wendong Zhang, an economist at Cornell University, said that the Chinese economy might suffer a steeper hit to its gross domestic product than the U.S., but it’s “likely to stick to its guns,” due to internal public support and the ability to increase consumption domestically on goods that might no longer be going to the U.S.
Thursday, the European Union announced that it would delay its counter-tariffs on U.S. imports for 90 days.
In an open cabinet meeting Thursday, Trump praised the EU decision.
“They’ve been very tough, but they were very smart. They were ready to announce retaliation. And then they heard about what we did with respect to China and others but China, and they said, you know, we’re going to hold back a little bit,” Trump said.
Meanwhile, Canada’s former top trade negotiator said Thursday that if nations around the world co-ordinate their responses to Trump’s global trade war, the U.S. president would be more likely to back away from tariffs sooner.
Speaking on a trade panel at the Broadbent Institute’s conference in Ottawa, Steve Verheul said Trump’s abrupt change of course this week shows his administration is vulnerable to financial and market pressures.
“I think retaliation can be a useful tool, and it’s unfortunate that most of the rest of the world didn’t see it that way,” Verheul said. “Because I think if there had been a more co-ordinated response from countries around the world, then we could have seen this fall away even more quickly.”
Verheul served as Canada’s chief trade negotiator from 2017 to 2021 when the Canada-U.S.-Mexico Agreement, also called CUSMA, was negotiated during the first Trump administration.
He said retaliatory tariffs are an important tool for pushing back on unfair trade actions and can help to balance positions at the negotiating table.
Verheul said the 90-day pause will see dozens of countries try to negotiate an end to tariffs — but Trump could very well decide to reimpose them at some point.
If that happens, he said, and if countries co-ordinate their responses, Trump’s tariffs wouldn’t last long and the multinational effort also would send a strong message to the White House.
“That would be a significant rebuke to the U.S.,” Verheul said, “about the merits of going in that kind of direction and completely obliterating trade laws that we’ve all operated under for the last 75 years.”
A growing chorus of critics Thursday also suggested that Trump was manipulating stock markets for the benefit of some of his backers, noting a rise in options trading hours before the markets rose Wednesday.
“NASDAQ call volume spiked minutes before the 90 day tariff pause was announced. Not a good look at all,” noted Spencer Hakimian, founder of Tolou Capital management in a post on X.
N.Y. Congresswoman Alexandria Ocasio-Cortez, responding to Hakimian’s post, suggested that some members of the House of Representatives may have taken advantage of inside knowledge.
“Any member of Congress who purchased stocks in the last 48 hours should probably disclose that now. I’ve been hearing some interesting chatter on the floor. Disclosure deadline is May 15th. We’re about to learn a few things. It’s time to ban insider trading in Congress,” Ocasio-Cortez wrote.
Hours before announcing the 90-day pause was announced, Trump had also suggested investors jump into the market.
“THIS IS A GREAT TIME TO BUY,” Trump wrote, encouraging them not to panic in another post.
With files from Star wire services
