Global Markets Feel the Heat of Trump’s Tariff War
Repercussions from President Donald Trump’s tariff war spread across global markets, knocking down stocks and spurring a flight into fixed-income havens. U.S. equities and the dollar bore the worst selling on speculation the president’s trade offensive will stunt the American economy.
About $2 trillion was erased from the S&P 500, with the gauge down about 4%. The damage was heaviest in companies whose supply chains are most dependent on overseas manufacturing, including giants Apple Inc., Nike Inc. and Walmart Inc.
A Bloomberg gauge of the dollar dropped the most on record. Crypto succumbed to the risk rout. Oil joined a selloff in commodities.
Concern that the steepest increase in American tariffs in a century will hammer economic growth is driving a fierce rally in global bonds, sending the yield on benchmark Treasuries briefly below the closely-watched 4% level.
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Most other yields also slipped to session lows as money markets priced in a 50% chance of the Federal Reserve delivering four quarter-point rate reductions this year.
Related: ‘Going to be hard hit’: D-FW braces for new Trump tariffs
The Impact of Tariffs on the Economy
Trump has embraced tariffs as a tool to assert U.S. power, revive manufacturing at home and extract geopolitical concessions — counter to the decades-old consensus that lower trade barriers help to foster ties among nations and prevent conflicts.
Economists say the near-term result of his measures will likely be higher U.S. prices and slower growth, or perhaps even a recession.
“This was the worst-case scenario for tariffs and were not priced-into the markets,” said Mary Ann Bartels at Sanctuary Wealth. “If these tariffs stick, the economy is going to slow down. Whether it’s a recession or not, it’s clear that the economy is headed for a slowdown in the U.S. and around the world. There’s no place to hide, but the fixed-income markets.”
Market Performance
The S&P 500 sank 4.3%. The Nasdaq 100 slid 4.9%. The Dow Jones Industrial Average lost 3.7%. The Russell 2000 plunged 6.7% and is now down more than 20% from its all-time high reached in late 2021. Wall Street’s chief fear gauge — the Cboe Volatility Index — topped 28, above the 20 level that usually indicates concern among traders.
The yield on 10-year Treasuries fell 12 basis points to 4.01%. The 2.1% tumble in the Bloomberg Dollar Spot Index was the measure’s sharpest intraday decline since its launch in 2005.
Recession Fears
Recession fears have been rising and that is visible across various asset classes. Stocks and bond yields are back moving in concert and their correlation is highest in two years. But unlike in 2023 when they were both going up, this time they’re falling, a typical sign that economic growth expectations are being downgraded.
“I have no doubt that over the near term tariffs will be detrimental to growth,” said Irene Tunkel at BCA Research. “We have gone through the first stage of this calamity and, as I said before, this is bad for financial markets. The first stage is peak uncertainty. The next stage will be downgrades in earnings.”
Global Economic Impact
The U.S. risks being caught between slowing growth and rising prices as a result of the sweeping tariff plans unveiled Wednesday by the Trump administration, according to the president of Apollo Global Management Inc.
The chances of a recession in the world’s biggest economy have risen to 50% or higher, Jim Zelter said in a Bloomberg Television interview in New York on Thursday. The risk that tariffs accelerate inflation and constrain the Fed’s ability to stimulate growth by slashing rates has also risen materially, he said.
Market Outlook
“We’re left to ponder how far the price action can extend from here. At this stage, the more relevant uncertainty is the degree to which the U.S. equity market will sell off. In the event that stocks continue to slide, we anticipate that Treasury yields will do the same,” said Ian Lyngen and Vail Hartman at BMO Capital Markets.
Trump’s trade war is likely to reinforce the underperformance of U.S. equities, as tariffs crimp earnings for corporate America, according to global strategists at HSBC including Alastair Pinder.
Stocks, Currencies, and Cryptocurrencies
Stocks
- The S&P 500 fell 4.3% as of 10:54 a.m. New York time
- The Nasdaq 100 fell 4.9%
- The Dow Jones Industrial Average fell 3.7%
- The Stoxx Europe 600 fell 2.7%
- The MSCI World Index fell 3.3%
- Bloomberg Magnificent 7 Total Return Index fell 6.7%
- The Russell 2000 Index fell 6.6%
Currencies
- —The Bloomberg Dollar Spot Index fell 2.1%
- —The euro rose 2.5% to $1.1123
- —The British pound rose 1.3% to $1.3173
- —The Japanese yen rose 2.6% to 145.40 per dollar
Cryptocurrencies
- —Bitcoin fell 4.8% to $81,516.12
- —Ether fell 6.6% to $1,757.71
Bonds and Commodities
Bonds
- The yield on 10-year Treasuries declined 12 basis points to 4.01%
- Germany’s 10-year yield declined nine basis points to 2.64%
- Britain’s 10-year yield declined 12 basis points to 4.52%
Commodities
- West Texas Intermediate crude fell 7.8% to $66.15 a barrel
- Spot gold was little changed
Conclusion
The repercussions of President Trump’s tariff war are being felt across global markets, with stocks and the dollar bearing the brunt of the selling. The uncertainty surrounding the trade war has driven a fierce rally in global bonds and has sparked fears of a recession. As the situation continues to unfold, investors will be closely watching the markets for any signs of a turnaround.
Frequently Asked Questions
Q: What is a tariff war?
A: A tariff war is a situation where countries impose tariffs, or taxes, on each other’s goods and services in retaliation for similar actions by the other country.
Q: How do tariffs affect the economy?
A: Tariffs can have a negative impact on the economy by increasing the cost of goods and services, leading to higher prices and slower economic growth.
Q: What is the impact of the tariff war on global markets?
A: The tariff war has led to a decline in stock markets, a rise in bond yields, and a decline in the value of the dollar.
Q: Is a recession likely?
A: The chances of a recession have risen to 50% or higher, according to some economists, due to the uncertainty and negative impact of the tariff war on the economy.
