April 2nd. That’s the date that changed the math for a lot of portfolios this year.

Trump called it “Liberation Day.” A 10% baseline tariff on virtually every country in the world, with a massive 145% rate locked onto China specifically. Markets had been bracing for something. Nobody was bracing for that. On April 2, 2025, President Trump declared a national economic emergency and announced sweeping new import tariffs — a baseline 10% on all foreign goods, with a 145% rate on products from China.

The response was fast and ugly.

The S&P 500 dropped 15% in under a week. The Nasdaq was down nearly 20% for the year by April 7. That’s not a correction. That’s a regime shift in sentiment. China responded almost immediately — tariffs on US imports jumped to 125%, and restrictions were placed on the export of rare earth elements, materials essential to global manufacturing.

Here’s the thing about rare earths — it’s easy to gloss over that detail. But those materials run through semiconductors, defense tech, EV batteries, wind turbines. China restricting exports there isn’t just a trade move. It’s a pressure point on the industries that define the next decade of growth. That part of the story doesn’t get enough attention.

Why markets hate this so much

It’s not just the tariffs themselves. It’s the uncertainty they create. Trade wars inject a lot of uncertainty into the economy — will more tariffs follow? Will other countries retaliate? That kind of unpredictability causes companies to delay investments and hiring, while consumers may start pulling back on spending.

And then there’s valuation. Stock valuations were already elevated heading into 2025, with the market trading at 22 times forward earnings — well above the 16.5 average over 1990 to 2024. “When you have those elevated valuations, the market will be more sensitive to bad news.” So the kindling was already there. The tariff announcement was just the match.

A trade war often prompts investors to rotate out of stocks into safer assets like bonds or gold. This “risk-off” sentiment can cause broader market declines, especially in cyclical sectors like technology, energy and industrials, which are more sensitive to global trade. We saw exactly that playbook run in real time.

Then came the whipsaw. On April 9, Trump announced a 90-day pause on new tariffs for most countries — explaining it by saying people were getting “a little bit yippy,” his way of describing nervousness in the markets. The S&P 500 on Wednesday posted its biggest one-day jump since 2008, but by Thursday afternoon about a third of those gains had been reversed. Two days of trading that told the whole story — total dependence on policy, not fundamentals.

The recovery came eventually. On May 12, the US and China agreed to a temporary deal — the US would cut tariffs on Chinese products to 30% and China would cut tariffs on American products to 10% minimum for 90 days. The next day, the S&P 500 turned positive for the year. The S&P 500 recovered fully from the crash on June 27, 2025.

But here’s where I’d push back on the feel-good narrative: a temporary deal is not a resolution. It’s a pause. The underlying tension — over trade imbalances, technology competition, rare earth access, Taiwan — none of that went away. Geopolitical headlines can move markets quickly, but short-term swings do not always translate into lasting changes in the economy. That cuts both ways.

What I’m watching from here

A few things matter more than the headline tariff number at this point.

• The 90-day clock. Every temporary truce has an expiration. Watch what happens when that window runs out — whether negotiations extend, collapse, or just drift. Markets will react either way.
• Rare earth restrictions. China’s move to restrict exports of critical minerals is the quieter escalation most people aren’t tracking. It hits defense, chips, and clean energy simultaneously.
• The supply chain reshuffling. Many Chinese manufacturers have already shifted assembly operations to Southeast Asian countries like Malaysia, Thailand, Vietnam, and Cambodia. That’s a permanent structural change happening underneath the trade war noise.
• Treasury holdings. China reduced its US Treasury holdings for the third consecutive month since March, lowering them to $756.3 billion — the lowest amount since March 2009. That’s a slow-moving signal worth paying attention to.

“Investors are navigating a lot of moving parts, adding the Middle East conflict to tariff uncertainty, a change in Federal Reserve leadership and midterm elections,” according to Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group. That’s a fair summary of the environment. A lot of variables, and policy is driving more of them than usual.

The market recovered. That’s real. But the conditions that caused the April crash — an over-leveraged geopolitical relationship between the two largest economies, with no clear rulebook — those conditions are still in place. The next move in this story probably won’t announce itself in advance.