Global markets spiral as Trump's tariffs trigger turmoil
The trade war initiated by President Trump is sending global markets into a downward spiral. Analysts note that the asymmetric nature of this conflict, where the U.S. faces off against multiple countries, 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 imposing 34% tariffs on American products, leading to further declines in an already weakened market. French President Emmanuel Macron has called for a halt on European investments in the United States, and Canada's Prime Minister Justin Trudeau 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 4,450 points last year, highlights 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
Though many observers point to the possibility of negotiations that could reduce tariffs and stop the sell-off, it's unclear whether President Trump is even willing to negotiate. A video has even emerged on social media, suggesting that he is deliberately causing a market collapse. U.S. trade partners may also not be interested in negotiations, especially since opposing Trump appears to be 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 disadvantage in negotiations. Counterattacks have already begun, and former allies admit that the previous order has ceased to exist. The Canadian Prime Minister, who has already imposed tariffs on American cars matching those of 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 to 2 percentage points as a result of tariff implementation, while inflation could rise to nearly 5%. Bhanu Baweja from UBS writes that the scale of damage it can inflict on the U.S. economy suggests that a rational assessment sees the likelihood of their maintenance as low.
A bearish future for markets
Investors typically rely on Federal Reserve intervention during such moments. The market is already factoring in more interest rate cuts this year than just a week ago, including a 100% 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 meeting in May.
The problem is that while cuts may cause a short-term rebound, their medium-term impact may be limited. Stack recalls the financial crisis of 2008-2009, which occurred despite the Fed cutting rates starting 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% since reaching a 52-week high on November 25. The Nasdaq Composite joined it on Friday, losing 22% since December 16. The S&P 500, currently at 5,238, would need to drop by another 3.9% to 4,915 to reach the 20% decline required to declare a bear market. At this pace, this could occur 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 globally. The politician expressed the opinion that their effect will benefit the U.S. economy. - Look, one bad day in the stock market compared to what President Trump said earlier today - he stated.
"My policy will never change," wrote Donald Trump. The U.S. President encouraged investment in the United States following the announcement of high tariffs on goods worldwide.
