Politics

Trump’s Tariff Threat: How a Single Tweet Tanked US Stocks and Sent Markets Spiraling

Trump’s tariff threat on China caused a 600-point Dow drop, fueled fears of a trade war.

October 10, 2025, 4:41 PM

Brokers and executives are seen on the New York Stock Exchange floor, with a large screen displaying the Ford Motor Company stock ticker among various market data. By Steve Sanchez Photos / Shutterstock.com.

Executive Summary

President Donald Trump’s threat of new tariffs on Chinese imports, accusing China of attempting to “hold the World ‘captive’” over rare earth exports, reignited fears of a trade war.

US stock markets experienced a significant downturn, with the Dow Jones Industrial Average dropping 600 points, and shares of AI and chip manufacturing companies falling while US rare earth companies saw gains.

The renewed trade tensions led to a rush to safer assets like US Treasuries, gold, and silver, caused oil prices to slump, and pushed the CNN Fear and Greed index into “fear.”

The Story So Far

The significant market downturn followed President Trump’s threat of new tariffs on Chinese imports, reigniting widespread fears of a trade war reminiscent of his previous administration. This escalation is rooted in ongoing US-China geopolitical and economic tensions, exacerbated by President Trump’s accusation that China is leveraging its dominant position in rare earth exports to hold the world “captive.”

Why This Matters

President Trump’s renewed threat of tariffs on Chinese imports immediately triggered a significant downturn across US stock markets, particularly impacting AI and chip manufacturing sectors while boosting domestic rare earth companies, reflecting a tangible shift in investor sentiment from “neutral” to “fear.” This escalation of trade tensions also prompted a flight to safer assets like Treasuries and gold, simultaneously causing oil prices to fall due to concerns about potential “demand destruction” and a broader economic slowdown.

Who Thinks What?

President Donald Trump believes China is attempting to “hold the World ‘captive’” over rare earth exports and is considering a “massive increase” in tariffs on Chinese goods, indicating he no longer sees a need to meet with President Xi Jinping.

Investors reacted with widespread fear to President Trump’s tariff threats, leading to a significant downturn in US stock markets, a surge in the CBOE Volatility Index, and a shift towards safer assets like US Treasuries, gold, and silver.

Economists and commodity specialists, such as José Torres and Robert Yawger, believe that AI and tech stocks are particularly vulnerable to such shocks, and a potential trade war could lead to a “demand destruction event” impacting economic growth and oil demand.

US stock markets experienced a significant downturn on Friday, October 10, 2025, after President Donald Trump threatened to impose new tariffs on imports from China, reigniting widespread fears of a trade war. The Dow Jones Industrial Average dropped by 600 points, marking a substantial shift in investor sentiment.

President Trump conveyed his intentions through a social media post, stating he was considering a “massive increase” in tariffs on Chinese goods. He accused China of attempting to “hold the World ‘captive’” over rare earth exports and indicated he no longer saw a need to meet with President Xi Jinping at the upcoming Asia-Pacific Economic Cooperation summit in South Korea.

Market Response

The Dow’s 1.3% decline placed it on track for its worst day since June. The broader S&P 500 fell by 1.9%, while the tech-heavy Nasdaq Composite saw a 2.6% drop, heading for its steepest decline since April. This abrupt market reaction came despite US stocks hovering near record highs in recent months, with Wall Street previously prioritizing better-than-expected corporate earnings over tariff concerns.

The President’s remarks also caused Wall Street’s fear gauge, the CBOE Volatility Index, to surge by 33%. Companies heavily invested in artificial intelligence and chip manufacturing, which are particularly sensitive to US-China trade relations, saw their shares fall. Nvidia dropped 2.5%, and Advanced Micro Devices (AMD) decreased by 6%. Conversely, US-based rare earth mining and processing companies, such as USA Rare Earth and MP Materials, experienced significant gains, rising 14.5% and 12.6% respectively.

José Torres, a senior economist at Interactive Brokers, noted that AI and tech stocks were particularly vulnerable to such a shock. “When you have a shock like today with President Trump, they are going to get hit the most because they’re the most at risk to the economic outlook worsening or corporate earnings retreating due to a potential slowdown,” Torres stated, adding that Wall Street had already been concerned about the valuations of these stocks.

Broader Economic Impact

The rush to safer assets led to a rally in US Treasuries, with yields on 10-year and 30-year bonds falling as investors acquired them. Gold and silver, traditionally considered safe havens during market turmoil, initially saw jumps of up to 1.5% and 2.2% before paring some of those gains.

Oil prices also slumped, with US oil dropping 4% and Brent crude falling 3.6%. Robert Yawger, a commodity specialist at Mizuho Securities, attributed this to concerns of a “demand destruction event” stemming from a potential trade war impacting economic growth and oil demand. This downturn followed earlier declines in oil prices partly influenced by ceasefire developments between Israel and Hamas.

The renewed trade tensions significantly impacted investor confidence, leading the CNN Fear and Greed index to drop from “neutral” into “fear” for the first time since May, reflecting heightened unease across financial markets.