Stock markets worldwide are careening even lower Friday after China matched U.S. President Donald Trump's big raise in tariffs in an escalating trade war. Not even a better-than-expected report on the U.S. job market, which is usually the economic highlight of each month, was enough to stop the slide.    

The S&P 500 was down 3.8 per cent in midday trading, after earlier dropping more than five per cent, coming off its worst day since COVID-19 wrecked the global economy in 2020. The Dow Jones Industrial Average was down 1,349 points, or 3.3 per cent, as of 11:30 a.m. ET, and the Nasdaq composite was 3.8 per cent lower.

Canada's main stock index, S&P/TSX, had already fallen nearly 1,000 points, or 4.1 per cent, as of 11:45 a.m. ET. 

So far, there are few, if any winners, in financial markets from the trade war. European stocks saw some of the day's biggest losses, with indexes sinking roughly four per cent. The price of crude oil tumbled to its lowest level since 2021.

Other basic building blocks for growth, such as copper, also saw prices slide sharply on worries the trade war will weaken the entire global economy.

China's response to U.S. tariffs caused an immediate acceleration of losses in markets worldwide. The Commerce Ministry in Beijing said it would respond to the 34 per cent tariffs imposed by the U.S. on imports from China by imposing a 34 per cent tariff on imports of all U.S. products beginning April 10. 

The United States and China are the world's two largest economies.

Better-than-expected jobs report

Markets briefly recovered some of their losses following Friday morning's U.S. jobs report, which said employers accelerated their hiring by more last month than economists expected. It's the latest signal the U.S. job market has remained relatively solid through the start of 2025, and it's been a linchpin keeping the economy out of a recession.

But that jobs data was backward-looking, and the fear hitting financial markets is about what's to come.

WATCH | Marketing strategist breaks down some of the market reaction to tariff shock:

CBC host Ian Hanomansing speaks with a chief market strategist following Trump's tariff shock

CBC host Ian Hanomansing speaks with a chief market strategist following Trump's tariff shock

"The world has changed, and the economic conditions have changed," said Rick Rieder, chief investment officer of global fixed income at U.S. investment bank BlackRock.

The central question is: Will the trade war cause a global recession? If it does, stock prices will likely need to come down even more than they have already. The S&P 500 is down roughly 15 per cent from its record set in February.

Much will depend on how long Trump's tariffs stick and what kind of retaliations other countries deliver. Some of Wall Street is still holding onto hope Trump will lower the tariffs after negotiating with other countries to pry out some "wins." Otherwise, many say a recession looks likely.   

For his part, Trump has said Americans may feel "some pain" because of tariffs, but he has also said the long-term goals, including getting more manufacturing jobs back to the United States, are worth it. On Thursday, he likened the situation to a medical operation, where the U.S. economy is the patient.   

"For investors looking at their portfolios, it could have felt like an operation performed without anesthesia," said Brian Jacobsen, chief economist at Annex Wealth Management.

But Jacobsen also said the next surprise for investors could be how quickly tariffs get negotiated down. "The speed of recovery will depend on how, and how quickly, officials negotiate," he said.

WATCH | Trump brushes off market shock after tariff announcement: 

Trump brushes off tariff-related market chaos: ‘It’s going very well’

U.S. President Donald Trump and his allies are defending his sweeping ‘Liberation Day’ tariffs despite a global stock market selloff and rising fears of a worldwide recession. Trump said he thinks ‘it’s going very well,’ and that countries will soon come looking for deals.

Vietnam said its deputy prime minister would visit the U.S. for talks on trade, for example, while the head of the European Commission has vowed to fight back. Others have said they were hoping to negotiate with the Trump administration for relief.

Stocks plummeting in wake of China move

Trump criticized China's retaliation on Friday, saying on his Truth Social platform that "CHINA PLAYED IT WRONG, THEY PANICKED - THE ONE THING THEY CANNOT AFFORD TO DO!"

On Wall Street, stocks of companies that do lots of business in China fell to some of the sharpest losses.    

GE Healthcare got 12.3 per cent of its revenue last year from the China region, and it fell 13.3 per cent. United Airlines, which is in an alliance with Air China and got a third of its passenger revenue last year from flights across the Pacific, lost 12.6 per cent.

DuPont dropped 11.3 per cent after China said its regulators are launching an anti-trust investigation into DuPont China group, a subsidiary of the chemical multinational. It's one of several measures targeting American companies in retaliation for the U.S. tariffs.   

In the bond market, Treasury yields continued falling sharply, as worries rise about the strength of the U.S. economy. The yield on the 10-year Treasury tumbled to 3.94 per cent from 4.06 per cent late Thursday and from roughly 4.80 per cent early this year. That's a major move for the bond market.   

The Federal Reserve could cut its main interest rate to relax the pressure on the economy, as it was doing late last year before pausing in 2025. But it may have less freedom to move than it would like.

Fed chair Jerome Powell said in written remarks being delivered in Arlington, Va., that tariffs could also drive up expectations for inflation. That could be even more damaging than high inflation itself, because it can drive behaviour that begins a vicious cycle that only worsens inflation. U.S. households have already said they're bracing for sharp increases to their bills.

"Our obligation is to keep longer-term inflation expectations well-anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem," Powell said.

U.S. Secretary of State Marco Rubio denied on Friday that global economies were being impacted, insisting that the markets would "adjust" in time. 

"Their economies are not crashing. The markets are reacting to a dramatic change in the global order in terms of trade," he said, speaking from Brussels after a meeting with NATO Secretary General Mark Rutte.  

In stock markets abroad, Germany's DAX lost 3.9 per cent, France's CAC 40 dropped 3.6 per cent and Japan's Nikkei 225 fell 2.8 per cent.