Stocks struggle as Trump slaps new tariffs, Fed cut bets unwind

Global markets recoiled on Friday as President Donald Trump announced sweeping new tariffs. The aggressive tariffs targeted industrial goods, pharmaceuticals, and furniture. Now, traders, who were hoping for big rate cuts from the Fed, are uncertain. 

Both Trump’s tariff announcement and the less hopeful traders reveal the deeper underlying faults, along with shaking the market. 

Tariff Shock Hits Pharmaceuticals, Furniture, and Trucks

On Thursday, Trump unveiled a new round of duties targeting a wide range of imports. The U.S. will impose:

• 100% tariffs on imported branded drugs
• 25% tariffs on heavy-duty trucks
• 50% tariffs on kitchen cabinets
• 50% tariffs on bathroom vanities (starting next week)
• 30% tariffs on upholstered furniture (starting next week)

“All the new duties will take effect from October 1,” Trump confirmed, adding, “Foreign companies are flooding our market with cheap goods… This is about protecting American jobs and restoring balance.”

The pharmaceutical sector was among the first to feel the impact. Japan’s Topix pharma index dropped 1.4%, while shares of Australian biotech firm CSL plunged more than 3%. The Nikkei fell 0.5%, and MSCI’s Asia-Pacific index outside Japan slipped 0.45%.

Tony Sycamore, market analyst at IG, noted that, “At this point in time, it sort of adds to a bit of a shaky backdrop we’ve got in terms of risk assets.”

Rate Cut Optimism Fades as U.S. Data Surprises

Markets had been pricing in multiple rate cuts by the Federal Reserve. However, the strong economic data released on Thursday changed everything; traders changed their minds regarding expected big or fast rate cuts.  

“The data deluge… gives the U.S. economy a new lease on life,” economists at Wells Fargo wrote. “Ultimately, the updated GDP figures suggest the U.S. economy was undeniably resilient in the first half of the year despite the on-again, off-again approach to U.S. trade policy.”

Traders are now pricing in just 39 basis points of rate cuts by December, down from over 40 earlier in the week. 

Sycamore added, “There was some bullish optimism built into markets… now I think we’re probably looking at four (rate cuts) at most, and maybe even that seems a bit generous at this point in time into the end of 2026.”

Fed Voices Diverge on Path Forward

While most Fed officials remain cautious, newly appointed policymaker Stephen Miran broke ranks Thursday, urging swift action.

“Sharp interest-rate cuts are necessary to prevent a labor market collapse,” Miran said, signaling urgency amid trade tensions.

The reduced expectations of rate cuts lifted the dollar, which hovered near 150 yen. The euro fell 0.6% to $1.1668, while the British pound held steady at $1.3344.

Commodities Edge Higher Amid Uncertainty

Oil prices rose modestly, with Brent crude up 0.24% to $69.59 per barrel. The U.S. crude is gaining 0.43% to $65.26. Spot gold edged up to $3,751.69 an ounce, reflecting investor caution.

Trump also revealed ongoing talks with Turkey, stating that “I believe Turkey will agree to my request to stop purchasing Russian oil,” and hinted at lifting sanctions to allow Ankara to buy American F-35 jets.

Business and Supply Chain Concerns Mount

Paul Brashier, VP of Global Supply Chain at ITS Logistics, said that “Most shippers are awaiting the appeal to the U.S. Supreme Court… There’s been a lot of frontloading to avoid the October 1 tariff deadline.”

Mike Short, President of Global Forwarding at C.H. Robinson, added that “Our customers are eager to know and plan for the ‘what ifs.’”

A recent survey by the American Chamber of Commerce in Shanghai found that two-thirds of U.S. firms in China expect revenue drops due to the tariffs and retaliatory measures.

As Sycamore put it, “It’s a shaky backdrop, and it’s not going away anytime soon.”

Important U.S. inflation data is expected later Friday. World leaders and investors have a keen eye on the market for any new development. Let’s see how political decisions, global events, or economic data impact the traders and investors who are uncertain and nervous after Trump’s decision. It seems the market will remain shaky for the coming weeks.