China’s retaliatory tariffs spark fresh turmoil in global financial markets

London’s FTSE 100 has joined New York’s top indexes in suffering the biggest daily decline since the start of the pandemic, in the dramatic fallout from Donald Trump’s tariff announcements.

Fresh turmoil was sparked on Friday by China announcing it will impose a 34% tariff on imports of all US products.

The new tariff matches the rate of the US “reciprocal” tariff imposed by Mr Trump this week.

The FTSE 100 dropped 419.75 points, or 4.95%, to close at 8,054.98.

This meant it suffered the biggest single-day decline since the start of the Covid-19 pandemic in March 2020, when the index lost more than 600 points in one day.

It also marked a worse day of trading than in the aftermath of the collapse of Silicon Valley Bank in 2023, and the day that Russia launched a full-scale invasion on Ukraine in 2022.

On Wall Street, the sell-off deepened after the S&P 500 and Dow Jones indexes both had their worst day of trade for five years on Thursday.

The S&P 500, which tracks the country’s leading listed companies, was sliding by about 4.7% by the time European markets closed.

This took it to its lowest level since May last year.

A lot remains in flux, with how other countries will respond to the tariff aggression will play a huge role in how things unfold

The Dow Jones, which tracks 30 large US companies, and the technology-focused Nasdaq index had both also dropped about 3.9%.

European markets also felt another bruising session, as countries in the EU face a 20% tariff on all goods exported to the US.

Germany’s Dax closed 4.95% lower, and France’s Cac 40 dropped 4.26%.

Lynn Song, chief economist for China at ING Economics, said: “The abrupt hike in US reciprocal tariffs indeed prompted a strong response from China, opting to match the retaliatory tariffs of 34% across the board.

“There does not appear to be exemptions in place, and the response appears to be in the spirit of an eye for an eye.

“A lot remains in flux, with how other countries will respond to the tariff aggression will play a huge role in how things unfold. Many scenarios remain in play.

“But as for the US and China, while it’s always possible that policymakers could soon come to the table, it looks like until then, a test of endurance is underway.”