U.S. Stocks Slide as Trump’s ‘Massive Tariff’ Threat Revives Trade War Fears

New York — For investors, Friday felt like a flashback to the turbulence of the U.S.-China trade wars of 2018 and 2019. Markets that had been cruising near record highs suddenly lurched lower after President Donald Trump fired off a volley of posts on Truth Social threatening a “massive” increase in tariffs on Chinese imports—up to 100% higher than current levels.

The move, he said, would punish Beijing for imposing fresh export restrictions on rare earth elements—critical materials for semiconductors, electric vehicles, and military systems. Trump also hinted that his long-anticipated meeting with Chinese President Xi Jinping at the APEC summit in South Korea could be canceled.

The reaction was swift. Within hours, the S&P 500 dropped 2.7%, its steepest one-day loss since April. The Dow Jones Industrial Average fell 1.9%, while the Nasdaq Composite sank 3.6%, erasing a week of gains. Roughly $2 trillion in market value vanished in a single session.

At the same time, Washington’s partial government shutdown, now stretching into its tenth day, deepened uncertainty. Investors were left to navigate a perfect storm of political brinkmanship, missing economic data, and fears of a new phase in the world’s most important trade relationship.

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From Record Highs to Risk-Off

Only days ago, markets were buoyant. Cooling inflation, resilient corporate earnings, and renewed optimism about technology stocks had lifted the S&P 500 to all-time highs. But the Trump tariff threat flipped sentiment overnight.

Every major sector fell except utilities and consumer staples. The CBOE VIX Index, Wall Street’s fear gauge, spiked 32% to 21.66, signaling a surge in volatility.

Safe havens surged: gold climbed 1.6% to $4,035 an ounce, and Treasury yields fell across the curve, with the 10-year sliding to 4.06%. Oil plunged, with WTI crude down 4.3% to $58.91 a barrel as traders priced in slower global demand. The U.S. dollar index slipped 0.5%.

“Markets are now pricing in not just tariffs, but the possibility of sustained trade fragmentation,” said Jane McAllister, chief strategist at Horizon Global. “This isn’t a replay of 2019—it’s potentially a structural shift in global trade dynamics.”

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Tech and Chips in the Crossfire

No sector felt the hit more than technology and semiconductors. The Philadelphia Semiconductor Index fell nearly 5%, as investors braced for new supply disruptions tied to China’s export curbs on rare earths.

AMD tumbled 7.8%, Nvidia 5%, and Qualcomm 7.3%, after Chinese regulators launched an antitrust probe into Qualcomm’s proposed acquisition of the Israeli chipmaker Autotalks. Synopsys slid 9.4%, while Tesla and Amazon each dropped more than 4%.

China controls about 99% of global processing of heavy rare earths, key materials in chips, EV motors, and fighter jets. Each F-35 fighter jet, analysts note, requires roughly 900 pounds of rare-earth materials. Beijing’s new licensing regime, requiring permits for products containing more than 0.1% rare earth content, triggered fears of a chokehold on supply chains.

Not every name suffered. Shares of MP Materials, the leading U.S. rare-earth miner, surged 8.4% on bets that domestic producers could benefit if Chinese exports slow.

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Trump’s Playbook Returns

In his posts, Trump accused Beijing of “hostile economic practices” and signaled the U.S. could reinstate tariffs as high as 130% starting November 1. “We are looking at a massive increase in tariffs on Chinese goods entering our country,” he wrote.

Earlier this year, the administration had eased tariffs from 145% to 30% following trade talks, helping markets rally. Now, with re-election season looming and the economy showing mixed signals, Trump appears to be reviving his old leverage tactics.

“Trump’s strategy is familiar: shock, negotiate, and recalibrate,” said Daniel Ko, Asia trade analyst at Barclays. “But the timing—amid a government shutdown and global slowdown—makes markets far more sensitive than before.”

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Beijing Strikes Back

China wasted no time responding. Officials announced new port fees on U.S. vessels starting October 14, intensified inspections on U.S. tech imports, and opened the Qualcomm investigation. A Foreign Ministry spokesperson warned that Beijing “will take necessary measures” if Washington escalates.

“The rare-earth export controls are fully compliant with Chinese law,” the spokesperson said. “If the U.S. chooses confrontation over cooperation, we will respond accordingly.”

Investors see this as the start of another round of tit-for-tat. “The era of managed trade truces may be over,” said Michael Liao, a Shanghai-based economist. “China is signaling it will fight asymmetrically—through regulation, licensing, and corporate pressure rather than headline tariffs.”

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Shutdown Shock: Data in the Dark

The 10-day partial shutdown, triggered by a congressional funding impasse, has halted the release of key economic indicators, including September jobs and inflation data. That leaves traders flying blind.

While previous shutdowns have typically been short-lived, analysts say this one could shave 0.3 to 0.4 percentage points off first-half GDP growth. The University of Michigan’s consumer sentiment index slipped to 55.0 in early October, a sign of mounting unease.

“Markets hate uncertainty, and this one is creating a data vacuum,” said Elaine Roth, head of macro strategy at HarborPoint Capital. “Investors can’t tell whether the economy is softening or just on pause.”

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Global Ripples

The selloff rippled across global markets. European equities slid about 1.5%, and Asian stocks followed lower on Monday trading. Commodity currencies weakened, while gold and the yen strengthened.

Beijing has hinted at further retaliation targeting U.S. software firms and defense suppliers. Analysts warn this could accelerate the decoupling of U.S.-China supply chains, a process already underway since 2023.

Longer term, Washington’s push to reshore production of strategic materials could reshape industrial policy. “It’s an inflection point,” said Sarah DuPont, an economist at the Peterson Institute. “If both sides double down, the next decade of trade will look nothing like the last.”

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The Outlook: Stay Calm, Watch the Data

For now, traders are eyeing technical levels. Analysts see support for the S&P 500 near 6,400; a break below could signal deeper correction. Still, many expect cooler rhetoric once markets digest the shock.

The next key test: third-quarter earnings from major U.S. banks and tech giants in the coming week.

In the meantime, advisors urge patience. “This is where disciplined investors separate from reactive ones,” said Roth. “Trade wars come and go. Fundamentals—and profits—eventually reassert themselves.”

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In an interconnected world, a few words on social media can erase trillions in value and shift the balance of global trade. Trump’s tariff threat is more than a market headline—it’s a reminder that geopolitics remains the ultimate risk asset.