Stock Market Circuit Breakers: How They Work and When They're Triggered
Circuit breakers were triggered in Japan, South Korea and Taiwan’s stock markets as they reacted to President Donald Trump‘s sweeping tariffs on Monday, with U.S. markets opening the week sharply lower—before briefly recovering and then falling again—in a new bout of volatility over the scope and strategy of the White House tariff policy.
Why It Matters
Circuit breakers, or trading curbs, were first instituted for U.S. markets after the Black Monday crash of 1987, when the Dow Jones Industrial Average fell more than 22 percent in a single day. They are measures self-implemented by stock exchanges to temporarily halt trading in order to give investors an opportunity to “cool off” amid large market sell-offs.
The market has been selling off precipitously since Trump announced new tariffs on dozens of countries across the globe, with the extent of the global market sell-off since last Wednesday’s announcement suggesting investors had not “priced in” the breadth of the tariff policy, meaning more wild swings could be likely.
JP Morgan and other big banks are now warning of a growing recession risk, adding to the volatility in indexes like the S&P 500.
What to Know
East Asian stocks took a hit Monday morning, with Japan’s Nikkei 225 dropping nearly 8 percent, South Korea’s Kospi 200 dropping nearly 6 percent and Taiwan stocks dropped nearly 10 percent, triggering circuit breakers in those markets.
In the U.S., there are a several levels of circuit breakers. If the S&P drops 7 or 13 percent before 3:25 p.m., a Level 1 or 2 circuit breaker will go into effect, according to the SEC. In both cases, trading is paused for 15 minutes.
Market indicators are displayed on digital screens at the Euronext trading exchange building in Paris, France on April 7, 2025.
THOMAS SAMSON/AFP via Getty Images
A Level 3 circuit breaker is triggered if the S&P drops 20 percent in value. In this case, trading is halted for the rest of the day to give investors further time to reassess market conditions and potentially avert greater stock volatility.
Cristian Tiu, chair and associate finance professor at the University at Buffalo, told Newsweek the circuit breaker is a “safety mechanism” that gives investors a moment to breath and a chance to “sit down and think about really how bad things are.”
“I tell my kids, before you say anything, try to count to 10 and take a deep breath. Once you do that, maybe the world as you see actually has changed and you can create a more nuanced response to it,” he said. “That’s what the circuit breaker is meant to do.”
Tiu said he does not believe, as things stand, the circuit breaker will be triggered due to the tariffs. The tariffs haven’t caused unfixable damage to the economy, he said.
But factors including how other countries respond to the tariffs and if more anti-trade measures are implemented could determine if the market gets to a worse environment that could set the stage for such a response, he said.
“Unless I see signals that we have to wage even more intense economic war, I don’t think actually that these will happen,” he said.
Still, Tiu noted that even if the circuit breaker is triggered, it’s no reason for significant panic.
“It’s just a breather,” he said. “It happens when market value has been wiped out in one single day, but it’s not the end of the world, actually, if it’s triggered.”
Market-wide circuit breakers have only been triggered a handful of times, most recently in the early days of the COVID pandemic. Circuit breakers were hit four times in March 2020—on March 4, March 12, March 16 and March 18—as the global scope of the coronavirus crisis was becoming apparent.
Before the pandemic, market-wide circuit breakers were triggered on October 27, 1997, when trading was brought to a halt amid sell-offs caused by a contagion effect in Asian stocks. Notably, the trading curbs were never instituted during the global financial crisis of 2008.
What People Are Saying
Jamie Dimon, CEO of JPMorganChase, in his annual letter released Monday: “The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession. And even with the recent decline in market values, prices remain relatively high. These significant and somewhat unprecedented forces cause us to remain very cautious.”
Trump on Truth Social Monday: “Countries from all over the World are talking to us. Tough but fair parameters are being set. Spoke to the Japanese Prime Minister this morning. He is sending a top team to negotiate! They have treated the U.S. very poorly on Trade. They don’t take our cars, but we take MILLIONS of theirs. Likewise Agriculture, and many other ‘things.’ It all has to change, but especially with CHINA!!!”
What Happens Next
Trump hasn’t indicated he plans to back down on his tariffs despite the market volatility, instead doubling down on new 50 percent tariffs on China.
Stocks were swinging wildly in late morning trading, though the S&P would still need to fall another 6 percent by the market close to trigger the Level 1 circuit breaker. The index was down 4 percent in early trading but recovered, and was lower by less than 1 percent by noon on Monday.
Update 4/7/2025 12:25 p.m. ET: This article was updated with additional information.