As 'Liberation Day' looms: How did the ASX 200 perform during Trump's 2018 trade war

In less than 24 hours, President Donald Trump will usher in what he calls "Liberation Day," rolling out a wave of reciprocal tariffs on global trade partners.

The specifics of the announcement remain murky, with various reports suggesting the tariffs could either target all US trading partners or focus on a select group. On Tuesday, Trump suggested restraint, saying, "relatively speaking, we’re going to be very kind." Yet officials like Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett point to a focus on nations with the biggest U.S. trade deficits, nicknamed the "Dirty 15."

As the deadline approaches, markets are clouded by uncertainty and volatility. On Monday, the S&P/ASX 200 suffered its third-worst session of 2025, tumbling 1.74%. The previous Friday saw the S&P 500 dip 2.0%, marking its second worst session of the year.

The bearish market and murky tariff details set the stage for a wide range of potential outcomes. Should the tariffs prove moderate and negotiable, markets could rally on the news. Conversely, broad and aggressive tariffs might stoke fears of an economic slowdown or recession, driving equities to fresh year-to-date lows.

Alternatively, if a worst-case scenario is already baked into prices, even harsh tariffs could trigger an initial dip followed by a rebound.

Luckily for us, Trump's first term may offer some insights into how the broader market performed during his trade war with China.

Trump 1.0

Trump's 2018 trade war led to significant market volatility and economic consequences. The key dates to note include:

1. 1 March 2018: Trump announced 25% steel and 10% aluminium tariffs, formalised on 8 March, effective 23 March, hitting US$17.9bn in imports. Canada and Mexico later received temporary exemptions.

2. 3 April 2018: US proposed 25% tariffs on US$50bn of Chinese tech and industrial goods. China countered the next day with US$50bn in tariffs on US exports like soybeans and aircraft.

3. 1 June 2018: Steel and aluminium tariffs hit Canada, Mexico, and the EU, affecting US$29.6bn in imports. Canada retaliated with US$12.8bn, EU with US$3.2bn in tariffs on US goods.

4. 15 June 2018: Trump confirmed 25% tariffs on US$50bn of Chinese imports, starting with US$34bn on 6 July. China matched with US$50bn in tariffs on US goods.

5. 10 July 2018: US proposed 10% tariffs on another US$200bn of Chinese goods, intensifying the trade war.

6. 17 September 2018: 10% tariffs on US$200bn of Chinese imports began 24 September, set to rise to 25% by 1 January 2019 (later delayed). China hit back with US$60bn in tariffs on US goods.

7. 1 December 2018: Trump and Xi agreed to a 90-day truce at the G20, pausing the US$200bn tariff hike from 10% to 25%. By mid-December, fears resurfaced that the truce would fail, with Trump tweeting on December 4 about being a “Tariff Man,” unsettling investors.

More broadly speaking, most of these announcements pushed the market lower. The below chart highlights how the S&P 500 and ASX 200 performed in 2018, with the numbers referring to the above dot points.

S&P 500 and ASX 200 performance (indexed to 100) in 2018 | Source: TradingView

Beyond tariffs

The market's volatility in 2018 was more than just tariffs – it also coincided with Fed rate hikes, broader economic weakness and poor corporate earnings, notably:

• Jan-Feb weakness was triggered by stronger-than-expected US jobs data, which flagged wage growth accelerating to 2.9% year-on-year, the highest since 2009. This drove classic inflation fears, pushed bond yields sharply higher, and sent the VIX rocketing from 13 to 50

• Alphabet and Apple posted weaker-than-expected earnings in February. Both stocks fell around 4-5%, dragging indices lower

• The Fed kicked off its hiking cycle in 2018, raising interest rates four times from 1.25-1.50% to 2.25-2.50% by year-end. Each hike pressured equity markets, particularly the December hike which drove the S&P 500 down as much as 15% that month

• China GDP growth slowed to 6.6% that year, its weakest since 1990, partly due to US tariffs

Putting it all together

Trump's 2018 trade war drove considerable volatility and downward pressure on markets. The weakness persisted for days, if not weeks, as investors weighed the impact on consumer prices and global trade.

Tariffs alone dented markets, but paired with rising yields, Fed tightening, and soft data, they triggered December’s steep sell-off:

• Bond yields had been climbing throughout the year as the Fed raised interest rates and the US economy showed strength. The US 10-year yield started the year around 2.4% and peaked at 3.2% in early November

• On 19 December, the Fed raised rates by 25 bps to 2.25-2.50% and signaled two more hikes in 2019, defying Trump's calls for a pause. The S&P 500 fell 1.5% that day and another 6.2% over the next three days

• December economic data was also weak, including falling housing starts, a partial government shutdown and a slump in the Philly Fed Manufacturing Index

2018 looks like a blip

2018 looks like a blip between two robust years. The S&P 500 soared 19.6% in 2017 and 30.4% in 2019 while the ASX 200 gained 7.0% and 18.3%, respectively.

S&P 500 (red) and ASX 200 (blue) performance 2017-2019 | Source: TradingView

By 2019, the pace of new tariff announcements slowed, replaced by negotiation updates, temporary truces and sporadic flare-ups. While trade wars remained a dominant theme it shifted in intensity compared to the escalation-heavy 2018.

In January 2019, Fed Chair Powell also signaled flexibility, saying the Fed would be "patient" and adjust policy if economic data weakened.

Where are we now?

Trump’s 2018 trade war offers lessons, but today’s stakes differ.

The Trump administration implemented approximately US$113 billion in tariffs in 2018-19. Today, we're staring down the barrel of at least US$770 billion — nearly seven times larger — according to UBS. The 2018-19 tariffs may have altered economic growth and inflation by a few percentage points, but the sheer magnitude of today’s will have far greater repercussions.

These reciprocal tariffs will hit multiple nations, likely igniting tit-for-tat battles, which drive further market volatility and uncertainty.

To account for some of these risks, Goldman Sachs bumped its U.S. recession odds from 20% to 35% last week. The analysts cut their 2025 GDP forecasts from 1.5% to 1.0% and lifted year-end unemployment forecasts from 4.2% to 4.5%.

As for central banks, the majority are in the midst of cutting cycles (or closer to cutting than hiking). But most, including the Fed and RBA, expect rates to remain steady amid tariff and inflation risks.

Recent economic data are showing some signs of a potential reacceleration in inflation. For example, the US ISM manufacturing index fell back into contraction territory in March, with its prices paid sub-index jumping to 69.4 points (vs. 54.9 points in January), the highest since June 2022. While year-ahead inflation expectations in the US also spiked to 5.0% in March, almost double the 2.6% reading last November.

Year-ahead US inflation expectations | Source: TradingEconomics, University of Michigan

The ASX 200 has bounced around 2.5% from its March 13 lows but remains 7% below February highs. This leaves investors in an awkward position where it feels like it’s too late to sell, yet too early to buy. With uncertainty swirling, we’re left to watch the data and wait for clarity as the dust settles.