Last week, President Trump finally announced his long-awaited “Liberation Day” tariff plan: a new 10% minimum tax on all goods entering the United States from overseas plus much-larger-than-expected “reciprocal” levies on imports from major trading partners such as China (34%), Japan (24%) and the European Union (20%).

The stock market plummeted in response, reflecting global fears that Trump’s new taxes on U.S. imports could disrupt supply chains, supercharge inflation and trigger a severe economic downturn.

On Monday, a series of new shockwaves — Trump threatening to raise tariffs on China by another 50%; a report, later discredited, that the president was considering a 90-day pause on his tariff rollout — further roiled markets, which swung wildly throughout the day.

What’s the connection between Trump’s tariffs and the stock market? Here’s a quick explainer (with key terms in bold).

What is the stock market?

Stocks are units of ownership that certain companies allow the public to purchase. Why? To raise money and grow their business. Each individual unit is called a share; the people who buy those shares are investors.

When you buy stock in a company, you actually become a part owner of that company. The hope is that if the business does well, the value of its stock will rise — enabling you, someday, to sell your shares for more than you paid.

A stock exchange is where investors buy and sell — i.e., trade — stocks. These exchanges can be physical places that also handle electronic trading, like the New York Stock Exchange, which is located on Wall Street in Manhattan, or they can be all-electronic, like the NASDAQ.

Each exchange has its own listing of stocks; those stocks aren’t available for trading elsewhere. Other big stock exchanges include the Tokyo Stock Exchange, the London Stock Exchange and the Hong Kong Stock Exchange.

The stock market is the sum of these stock exchanges — a big-picture way to describe all the buying and selling that’s going on.

A stock index, meanwhile, is a way to measure how the stock market is performing at any given moment, and to compare it to the past. Each index tracks a certain collection of telling stocks — hundreds or even thousands of them — and computes their overall value into a single number that serves as a scorecard for the market as a whole.

The Standard and Poor’s 500 (aka the S&P 500) is a stock index that tracks the 500 leading companies listed on American stock exchanges (including Apple, Microsoft, Amazon, Meta, Berkshire Hathaway and JP Morgan Chase). It’s considered the “benchmark” measure of how the U.S. market is performing.

The other two major U.S. stock indexes are the Dow Jones Industrial Average and the NASDAQ Composite. The Dow is relatively small — just 30 prominent companies — making it less volatile. The NASDAQ Composite includes nearly all of the companies listed on the NASDAQ exchange.

What are tariffs?

Tariffs, to be clear, are import taxes paid by the company doing the importing — not by the foreign country (or foreign business) sending its goods to the U.S.

Trump has long insisted that America is being “ripped off” by foreign countries and that universal tariffs will level the proverbial playing field by incentivizing companies to retain American workers and ramp up U.S. manufacturing — all while funneling trillions of dollars in new revenue to the federal government.

He has also railed against trade deficits — how much more money we spend on another country’s goods and services than we earn from selling it ours — and vowed that tariffs will balance them out.

But nearly all economists disagree with Trump’s take. They say most importers simply pass the added cost of tariffs on to U.S. consumers by raising their prices rather than going out of their way to replace the affected goods with American-made alternatives, which still tend to be more expensive. Then other countries retaliate with tariffs of their own, risking a global trade war and recession (or economic downturn).

Why are Trump’s tariffs having such a big effect on the stock market?

To understand the connection between the stock market and Trump’s tariffs, you need to understand how stock prices are determined.

When a company first goes public — a move known as an initial public offering, or IPO — its stock price is set by an investment bank. But from there, the price tends to fluctuate based on supply and demand. If more investors want to buy a stock (high demand) than sell it (low supply), the price tends to rise. Conversely, if more investors want to sell a stock (high supply) than buy it (low demand), the price tends to fall.

Every share of stock has an ask price (the lowest price a seller is willing to accept) and a bid price (the highest price a buyer is willing to pay). When a buyer and seller agree on a transaction price, that becomes the new price of the stock.

Supply and demand can rise and fall for various reasons. One reason is a company’s individual performance: financial health, earnings and future prospects all influence how valuable a particular business might seem.

But current events can sway investors as well.

Trump’s global trade war is a massive current event. And writ large, the market — how supply and demand for various stocks has shifted since Trump’s announcement; how prices have moved on the various exchanges in response; how indexes like the S&P 500 have measured this movement — is expecting the president’s actions to cause massive economic pain for American consumers and businesses, at least in the near term.

Are we in a bear market now?

A bear market is when a stock index ends a trading day 20% lower than its last peak, signaling a sustained downturn and pessimism among investors about the future of the economy.

A bull market is the reverse: when a stock index closes 20% higher than its latest peak.

On Friday, the S&P 500 closed down 17.4% from its most recent high point (Feb. 19). A further decline of about 3% would put it in bear market territory.

Bear markets sometimes foreshadow recessions, but not always. The biggest immediate problem is for people who need to sell their stocks ASAP and might have to settle for smaller payouts — like seniors nearing retirement.