President Donald Trump's new tariffs sent shockwaves through markets on Thursday, with the dollar and US stocks among the hardest hit on fears a broadening trade war will spur recession in a fragile world economy.

A combination of a 10% baseline levy and higher duties imposed on several trading partners reverses decades of liberalisation that shaped the global trade order.

"These tariffs are worse than expected, as shown by equities trading significantly down and gold and bonds trading up. Clearly, the reading here is that the recession risk is on the rise," Kasper Elmgreen, chief investment officer of fixed income and equities at Nordea Asset Management, said.

"If anyone should be uncertain that globalisation has reversed, this is the signifier."

A fall in the dollar, a 3.4% slide in Nasdaq futures NQc1 and the biggest jump in the bond market for nine months, as ten-year Treasury yields fell to just above 4%, all pointed to deep discomfort about the world's biggest consumer market disappearing behind a tariff wall.

"The higher tariffs will dent US efforts to reduce inflation, so it's possible the US will witness stagflation," said Wang Zhou, partner at Zhouzhu Investment in Shanghai.

"Investors are voting with their feet."

European shares fell, led by declines in tariff-sensitive sectors such as retail and luxury, although the sell-off was a lot more muted, with the STOXX 600 .STOXX down 1.7%, while the euro EUR=EBS jumped over 1.5%.

Fed funds futures rallied as investors priced in a higher chance of the Federal Reserve cutting interest rates.

The base 10% tariffs go into effect on April 5 and the higher reciprocal rates on April 9.

Tariffs of 25% on vehicle imports took effect at midnight. The new levies include a 34% tariff on imports from China, 46% on Vietnam, 24% on Japan and 20% on Europe.

The US dollar index sank to a near six-month low on Thursday, falling the most against safe havens such as the yen and franc.

A 3% slide in S&P 500 futures ESc1 suggested a steep drop later on Wall Street, as shares in Nvidia and Apple fell 6% and 7%, respectively.

Eric M. Clark, a portfolio manager at Alpha Brands in California, noted that S&P 500 companies get over 40% of their revenue from overseas.

"This raises the risk of recession here even higher," he said.

'NO ONE LIKES WHAT THEY SEE'
Announcing the levies, Trump spoke in terms of fairness, arguing that "reciprocal" tariffs were a response to duties and other non-tariff barriers placed on US goods.

"In many cases, the friend is worse than the foe in terms of trade," Trump said, calling it a declaration of independence.

European Union chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures.

"Whilst still uncertain, we will likely see retaliation from Europe but it's clear countries will think about how to retaliate in a politically astute way," Justin Onuekwusi, chief investment officer at St James's Place, said.

"Significant retaliation could lead to a tariff 'spiral of doom' that could be the growth shock that drags us into recession."

To be sure, some investors saw Trump's speech as a starting point for negotiation and in markets such as China, which had braced for tariffs and where most revenue is earned locally, selling in stocks and the currency was more contained.

All the same, policy volatility was starting to feed in to markets' gloom.

"It's created bad sentiment on the future, which slows down things," said John Luke Tyner, fixed income analyst at Aptus Capital Advisors in Fairhope, Alabama.

"You've seen slowdowns in projects, capital projects, CEOs' commentary on markets and the economy."

That comes at a delicate moment for US stocks, since in mid-March the S&P 500 confirmed a correction, a drop of 10% from a recent high, and the mood is nervous.

The index finished Wednesday's regular trading session 8% below its February record high.

"People were talking earlier about whether clarity would boost the market," said Jeanette Garretty, chief economist at Robertson Stephens.

"But now you have clarity, and no one likes what they see."