A wave of panic has swept through the financial markets. On Friday, October 10, President Trump announced his plans to impose tariffs of up to 130% on Chinese imports: i.e., an additional 100% tariff on top of the prevailing tariffs from April. He claims that this move is a response to Beijing’s trade pressures and efforts to restrict exports of key technologies and rare raw materials. The market reaction was surprisingly disastrous.
Another Battle in the Trade War
The core of this year’s escalation in trade relations between the US and China was undoubtedly the negotiations on tariffs. The additional duty imposed by the United States in February on all Chinese imports, together with restrictions on Chinese investments and technology transfers, amounted to 10%. China responded with countermeasures in the form of its own tariffs on US goods and restrictions on exports of strategic raw materials, especially rare earths.
At the beginning of April, a 34% tariff was imposed on all Chinese products. It took only a few weeks for tariffs to rise further to 145% on the US side and 125% on the Chinese side on US imports. Another milestone was the truce between Beijing and Washington as a result of the May talks in Geneva. US tariffs fell back to 30%, while China temporarily retained 10% on goods from the US.
Now, in October, it is time to say farewell to this temporary truce. Trump is currently considering restricting exports of US software and semiconductor technology to China. According to him, the tariffs are intended to protect American workers and prevent dependence on Chinese supplies. Beijing responded promptly and announced that it would tighten exports of strategic materials, especially rare earths, which are essential for the production of batteries and chips.
Stock and Crypto Slump
Financial markets reacted to this development with a sharp sell-off. The Dow Jones fell 1.90% to 45,479.60 points, the S&P 500 lost 2.71% and closed at 6,552.51 points. The Nasdaq Composite fell 3.56% to 22,204.43 points, the biggest one-day drop since April. The VIX volatility index rose 31.83% to 21.66 points, and the yield on 10-year US government bonds fell 9 basis points to 4.059%.
Technology stocks saw a particularly sharp decline. Nvidia lost 4.89%, AMD 7.72%, and Tesla 5.06%. Chinese technology stocks such as Alibaba, JD.com, and PDD Holdings fell between 5.3% and 8.5%. Shares in Qualcomm, which is facing an investigation in China for possible abuse of its dominant position, fell by 7.3%. European markets also reacted negatively. The Frankfurt DAX fell by 1.7%, the London FTSE 100 by 1.3% and the Prague PX index lost approximately 0.8%.
Market Reaction
The negative impact was not limited to stock markets. The price of Brent crude oil fell by 2.4% to $82 per barrel as investors anticipated lower global demand. Cryptocurrencies also reacted with a decline, with Bitcoin falling by almost 7% to $56,000.
Economists agree that if Trump actually imposes a 130% tariff, it would effectively block trade between the US and China. According to estimates by the US Department of Commerce, imports of Chinese goods could fall by up to 40% in the first year.
The reason for such a sharp reaction from investors is a combination of uncertainty, geopolitical risk, and fears of recession. Many US technology companies are directly dependent on Chinese suppliers and customers. A tariff increase of tens of percent could disrupt global supply chains and increase the prices of consumer electronics and automobiles. According to some analysts, the introduction of tariffs on such a scale could reduce US GDP growth in 2026 by up to 0.6 percentage points.
The greatest concerns surround China’s response. China controls approximately 90% of the world’s production of rare earths, which are key to the manufacture of electric cars, chips, and military technology. If Beijing were to restrict their export, it would affect not only American but also European companies. China has already indicated that it is considering retaliatory tariffs on imports of US agricultural products and aircraft.
Sunday De-escalation
At the beginning of the week, US stock futures rose sharply after President Donald Trump downplayed concerns about the escalation of the tariff dispute with China. He reassured everyone on social media: “Don’t worry about China, it will all be fine!” This brief post prompted an immediate reaction from the markets. Dow futures added more than 400 points (an increase of ~0.9%), S&P 500 futures rose 1.3%, and Nasdaq contracts strengthened by 1.8%. The market was thus recovering after a sharply negative Friday, when the Dow lost 1.9%, the S&P 500 fell 2.7%, and the Nasdaq plunged 3.6%—their strongest one-day decline in months.
Despite the current market volatility, some analysts are predicting a potential rebound as market participants await new CPI and PPI inflation data in the US, and thus clues to the Fed’s next immediate move. Last Friday’s decline reflected panic caused by trade tensions, but the situation could worsen this week if inflation remains high or trade hostilities escalate.
