Trump's global tariff war: A crisis shaking markets and allies
The trade war initiated by President Trump is sending the global market into a downward spiral. Analysts highlight that the asymmetric nature of the conflict, where the U.S. is at odds with everyone else, poses a serious threat to the American economy and its investors.
The decision to impose global tariffs triggered an immediate response from international partners. China has announced the introduction of 34 percent tariffs on American products, leading to further drops in an already weakened market. French President Emmanuel Macron has called for a halt to European investments in the United States, and Canada's Prime Minister Mark Carney stated that 80 years of American economic leadership have come to an end.
Analysts from BCA Research, cited by Barrons.com, emphasize the asymmetric nature of this conflict. Peter Berezin, who predicted the lowest target on Wall Street for the S&P 500 index at 4450 points by the end of last year, emphasizes that "when you engage in a global fight, where the other countries are only engaged in a fight against you, it's much more asymmetric."
Economy under pressure
While many observers suggest the possibility of negotiations to reduce tariffs and halt the sell-off, it remains unclear whether President Trump is even willing to engage in talks. A video has surfaced on social media, suggesting he is deliberately causing a market collapse. U.S. trade partners may also be uninterested in negotiations, especially since opposing Trump appears politically advantageous.
Dennis DeBusschere, an investment expert, explains that the structure of American tariffs is so weak that it puts the U.S. at a disadvantageous negotiating position.Counterattacks have already begun, and former allies admit that the previous order no longer exists. The Canadian Prime Minister, who has already imposed tariffs on American cars equal to those imposed by Trump, described the current situation as a "tragedy" that has become "the new reality."
Economists from UBS predict that the U.S. GDP could drop by 1.5-2 percentage points due to tariff implementation, while inflation could rise to nearly 5 percent. Bhanu Baweja from UBS writes that the scale of damage it can inflict on the U.S. economy means that a rational mind assesses the likelihood of their maintenance as low.
A bearish future for markets
Investors traditionally rely on intervention from the Federal Reserve in such situations. The market is already pricing in more interest rate cuts this year than just a week ago, including a 100 percent chance of a cut during the June FOMC meeting. James Stack, founder of InvesTech Research, suggests that if the stock market continues to decline at this pace, the Fed might decide to lower interest rates even before the May meeting.
The issue is that while cuts might cause a short-term rebound, their medium-term impact could be limited. Stack recalls the financial crisis of 2008-2009, which occurred despite the Fed beginning to cut rates in September 2007.
If the market slides too fast, I wouldn't rule out an emergency pre-emptive cut. I wouldn't count on that stabilizing the market, he states.
The Russell 2000 Index, which includes small-cap companies, has already entered a bear market, falling by 25 percent since reaching a 52-week high on November 25. The Nasdaq Composite joined it on Friday, losing 22 percent since December 16. The S&P 500, currently at 5238, would need to drop by another 3.9 percent to 4915 to reach the 20 percent decline needed to declare a bear market. At the current pace, this could happen as soon as next week.
Ed Yardeni, president of Yardeni Research, laments the current situation. "It’s really a shame that Trump is so willing to take a wrecking ball to the economy. It has been very resilient over the past three years in the face of the tightening of monetary policy," he says.
Trump pleased
U.S. Vice President J.D. Vance announced on Friday that the Donald Trump administration is pleased with the tariffs introduced on Wednesday on goods imported from most countries around the world. The politician expressed the opinion that their effect will be beneficial for the U.S. economy. "Look, one bad day in the stock market compared to what President Trump said earlier today," he stated.
"My policies will never change," wrote Donald Trump. The U.S. President encouraged investment in the United States following the announcement of high tariffs on goods from around the world.
