Global markets reel as Trump's trade war escalates
The trade war initiated by President Trump is plunging the global market into a downward spiral. Analysts point out that the asymmetric nature of the conflict, with the U.S. contending with numerous countries while they primarily challenge only the U.S., poses a significant threat to the American economy and its investors.
The decision to impose global tariffs prompted an immediate response from international partners. China has announced the introduction of 34 percent tariffs on American products, causing a further decline in an already weakened market. French President Emmanuel Macron has called for a suspension of European investments in the United States, while Canada's Prime Minister Mark Carney commented that 80 years of American economic leadership have concluded.
Analysts from BCA Research, cited by Barrons.com, underline the asymmetric nature of this conflict. Peter Berezin, who last year set the lowest target on Wall Street for the S&P 500 index at 4450 points, emphasises 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
Although many observers suggest the potential for negotiations to reduce tariffs and halt the sell-off, it's uncertain whether President Trump is even open to discussions. A video has even emerged on social media, suggesting that he is deliberately causing a market collapse. U.S. trade partners might also refrain from negotiating, particularly as opposing Trump seems politically advantageous.
Dennis DeBusschere, an investment expert, points out that the way U.S. tariffs are structured leaves the country at a disadvantage during negotiations. Countermeasures have already commenced, and former allies admit that the previous order is no more. The Canadian Prime Minister, who has already imposed tariffs on American cars equal to those introduced 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 decrease by 1.5 to 2 percentage points due to the tariff implementation, while inflation could rise to nearly 5 percent. Bhanu Baweja, from UBS, suggests that, given the significant harm these measures could cause to the U.S. economy, it is unlikely they will be sustained if assessed rationally.
A bearish future for markets
Investors traditionally rely on intervention from the Federal Reserve during such times. The market is already factoring 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 fall at this pace, the Fed might decide to lower interest rates even before the May meeting.
The issue 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 transpired despite the Fed starting to cut rates in September 2007.
He acknowledges that if the market drops too rapidly, an emergency and precautionary rate cut might be possible, but he doubts it would be enough to steady the market.
The Russell 2000 Index, which includes small-cap companies, has already entered a bear market, dropping by 25 percent since reaching a 52-week high on 25 November. The Nasdaq Composite joined it on Friday, losing 22 percent since 16 December. The S&P 500, at 5238, would need to decrease by another 3.9 percent to reach 4915, achieving the 20 percent decline required to declare a bear market. At the current pace, this could occur as early as next week.
Ed Yardeni, president of Yardeni Research, laments the current situation. - It's disheartening to see the administration strike a perfectly functioning economy with a wrecking ball, 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. 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 — and I think he’s right about this — we’re going to have a booming stock market for a long time because we’re reinvesting in the United States of America," he declared.
"My policies will never change," stated Donald Trump. The U.S. President encouraged investment in the United States following the announcement of high tariffs on goods from around the world.
