Index of fear

Stock markets don’t know how much worse it can get. But it can get plenty worse

On Monday, stock markets from Tokyo to London and New York convulsed again, although it wasn’t quite a replay of 1987’s Black Monday – when Dow Jones crashed 22.6% – that analyst Jim Cramer had warned of. Sensex and Nifty closed about 3% lower, but Hang Seng lost 13.2%, Nikkei almost 8%, and Kospi 5.6%. European stocks were trending lower, and US futures were also down at the time of going to press. That’s three days of steady market decline since ‘Doctor’ Trump applied his tariff “medicine” on April 2. Note that gold prices are softening, a sign that investors are selling this safe haven asset to recoup losses in other investments. 

Markets are hurting because of the uncertainty created by US tariffs. Nobody knows how they will hit demand and growth, or how long they will last. While US commerce secretary Howard Lutnick said on Sunday the 10% baseline tariff would “stay in place for days and weeks”, Trump himself said the overall tariffs – as high as 46% for Vietnam, 49% for Cambodia, and effectively 54% for China – would remain until America’s trade deficits disappear. Which, hypothetically, means forever because a poor country like Lesotho – tariffed at 50% for its ‘imbalanced’ textile and diamond exports – can’t afford to buy any US-made goods. And China’s 34% retaliatory tariff on US goods has spooked markets further. So, it’s Cold War all over again, with tariffs not nukes.

With US stocks in a slide, even Trump backers like billionaire investor Bill Ackman – personally worth $9bn – are worried that tariffs may lead to “a self-induced, economic nuclear winter”. All the gloom so far has arisen from tariff announcements. When tariffs actually bite a few weeks or months from now, the market sentiment may hit bottom. But it’s not about stock prices alone. Major market downturns have usually presaged a US recession, and both Goldman Sachs and JP Morgan had revised the probability of a recession last week. In his annual letter to shareholders released on Monday, JP Morgan CEO Jamie Dimon clearly warned that, even if there’s no recession, tariffs “will slow down growth”.

In the best-case scenario, most countries will rush to negotiate trade deals and the effect of tariffs may wear off in months. White House says “more than 50 countries” have reached out already. But China isn’t bending, and it’s impossible to make any complex product without some Chinese components, so US and Chinese tariffs will be felt across the world. As such, India, which has been slowing down, should quickly negotiate a friendly trade deal to end uncertainty. Of course, keeping the interests of vulnerable groups, such as farmers, in mind.