Financial markets around the planet were in chaos over the last week as a new set of tariffs initiated by the United States caused China to retaliate, along with concerns coming from European allies. The tit-for-tat trade conflict has erased trillions from the world market and produced anxiety about the end of economic growth in many parts of the globe.
The S&P 500 Index crashed to its lowest in 11 months, wiping off $5.4 trillion from the markets in just 2 days. This move is the fastest fall in two days since March 2020, which very well explains the extent of the unease among investors about the probable repercussions of the new trade policies.
Technology stocks were among the big losers in the downturn. The Philadelphia Semiconductor Index descended by 7.6% following a 9.9% drop on Thursday, with companies like Micron Technology that went down by 13% and Marvell Technology that fell more than 11%.
The energy and financial sectors bore huge losses as well, along with Baker Hughes that went down 13% and the insurer MetLife that fell by 9%. These unfortunate occurrences not only highlight fears that the tariffs will disrupt global supply chains but also refer to the overall economic outlook across more than one industry.
China’s move in response to the US tariffs has triggered further market fears. Beijing declared that from April 10 they would start imposing a 34% tariff on all products originating from the United States, and they specified that they were forced to take this action because the US was wrong in their trade policies and in the process were violating existing rules and at the same time doing harm to China.
Investors were increasingly concerned about the situation, as Chinas countermeasures crushed the market on the Old Continent. The pan-European Stoxx 600 lost 5.12% which is its highest weekly loss of the year resulting in an 8.3% decline from the week before in figures.
Former Italian Prime Minister Enrico Letta called the actions of the US on tariffs ‘pure madness’ and he thus spoke of the damage that tariffs would have on people and economies, and at the same time advocated for the real integration of the EU’s single market as a way of counteracting the fragmentation.
The European Commission has postponed the first round of tit-for-tat tariffs until the middle of next month, with the comment that they are still prepared to act with discretion, i.e. to solve the issue through peaceful talks, in such a way that nobody is economically damaged. This indeed is a very diplomatic stand that shows a wish to get things back to the normal track.
Wopke Hoekstra, the EU Commissioner for climate and clean growth, regarded the global tariffs as unwise and unhelpful. He has also repeated the EU’s preparedness to retaliate in case the talks collapse was made clear by him, in addition to the fact that even small trade surpluses exist between the two parties, with the EU and the US, respectively.
Eurochambres, the European business organization, demanded that the EU take a tough approach on the US tariffs. The organization’s representatives also emphasized that it was crucial to solve the business problem and at the same time problem of business’ increased entropy.
Investment experts have grown increasingly worried about the economic climate. Leading financial services company JP Morgan has projected that the US economy may go into recession by the end of the year with a contraction in the country’s GDP, should the current tariffs remain in place.
On Friday, Federal Reserve Chair Jerome Powell indeed verbalized his worries about the probable effects of these import duties. He stated that the increase in tariffs would be quite high, and he would expect the outcome to affect the level of inflation and the rate of economic growth, meaning the fighting of inflation by the Federal Reserve is hard to maintain.
Recent trade policies have hit the auto sector the hardest. The big players declared rising prices, imposed import duties, and stopped production as a result of the tariffs. Some companies even had to close operations in the United States, at least temporarily, to avoid bankruptcy.
With the new economic reality, speculators are reconsidering the actions of the Federal Reserve. The overnight market is fully locked in such a way that now four decreases of the discount rate are expected to happen before the end of the year. The likelihood of the fifth cut has also risen more than 50% compared to when there were only three cuts announced right after the tariffs were put on the table.
The announcement of March US employment numbers by the Bureau of Labor will be eagerly awaited. Although market professionals think that the document will display the creation of 140,000 jobs by US employers in March, some cautious researchers signal that the underlying issues might cause serious problem downstream.
Trade reality comes with challenges which require businesses and policymakers to change their strategies. Different companies are of various minds about their next step: while some are investigating alternative manufacturing solutions, others are getting ready to reflect these increased costs in the form of higher prices for their consumers.
The next few weeks are crucial in the quest for a peaceful solution and a chance to avoid a global trade war with prospects of a high chance of a major impact on the economy. The result will influence the future of different world economies, markets, and financial stability.
