We are now seeing a major change in how global trade is done as the United States has imposed a 10% basic tariff on nearly all imports of foreign goods. The taxes that began to be collected at 12:01 a.m. Eastern Time mark the most significant shift in U.S. trade policy since World War II and have already sparked off numerous reactions.
The stock exchanges of the entire globe have experienced an extreme reaction to the altered trade policy. Only two sessions have been enough for the S&P 500 to lose as much as $5.4 trillion in value, thus experiencing the deepest two-day drop since the onset of the Covid pandemic in March 2020 that resulted in the lockdown of the world.
Today we see the index, which is already 17% lower than the highest peak of last February, didn’t only start to fall but also continued to do so for six out of the last seven weeks. The sharp downturn that has taken place is the consequence of the concerns of investors regarding the potential economic effects of the tariffs and it has led to a radical change of the Fed policy.
Traders are now aggressively increasing their stake on the initiative of cutting the rates this year. Not only do the money markets already price in four cuts of a quarter of a percentage point by the end of the year but also the chances of a fifth one exceed 50%. The most recent data was for just three cuts expected before the tax increase was realized.
This situation is expected to get worse in the days to come. By April 9, a 57-nation group of countries, including the United Kingdom, Japan, and the entire European Union, will face even higher tariffs covering the range of 11% to 50%.
China is the first to make a retaliatory move, raising the import tariffs on all US goods to 34% after April 10. The US tough response drew a rapid complaint from the Chinese administration which pointed out what they term as one-sided “bullying” and breach of international trade regulations to their disadvantage.
European markets are one of the most hit by escalating trade tensions. On Friday, the pan-European Stoxx 600 index lost 5.12%, which is its highest weekly loss of the year, and was down 8.3% from the previous week.
Several European indices went through a similar fate as the major markets. For example, the UK’s FTSE 100 went down by 4.95%, Germany’s DAX dropped 4.95%, and France’s CAC 40 lost 4.26%. These plunges mirror the fears that the tariffs will adversely affect global economic growth.
The prediction of the United States facing a recession in 2019 became reality with JP Morgan’s strong alertness. It was noted by the chief US economist that the United States economy is going to shorten in the face of the tariffs.
Jerome Powell, the head of the Federal Reserve, aired his concerns about the new tariffs at the news of the impending danger of the new tariffs. Speaking to the community of business journalists on Friday, Powell commented that the hike in tariff will be much higher than the initial estimates, thus causing more inflation and slower growth.
There is a heavy snowballing effect in the auto industry due to this, where the big players are even announcing price hikes, import charges, and plant stoppages. VW announced it was going to charge U.S. customers with import fees, and Stellantis had to shut down two of their plants in Canada and Mexico.
Despite the somber predictions, there is a piece of good news. Those companies which have manufacturing activities in Vietnam, such as Nike and Lululemon Athletica, saw the stocks moving up after the positive conversation of Mr. Trump with the country’s leader was disclosed.
The report by the Labor Department that is published on Friday will be monitored quite closely for any traces of the economy’s condition. According to the analysts, the report is likely to indicate the generation of mere 140,000 jobs in March, as well as the rate of joblessness being kept at 4.1%.
The business and policymakers from all over the world who are still in the process to get adapted to these new trade conditions are endeavoring greatly to reduce the possible negative consequences of such a reality. The time that is about to come is going to be very decisive for achieving an understanding if these particular taxes will cause the war of the whole trade or friendly solutions can be found.
