Global markets reel as Trump's tariff strategy sparks alarm
America, Asia, Europe - nearly all major indices are in the red. Wall Street has experienced its worst quarter in 23 years and faces massive uncertainty ahead. Investors fear the worst, namely a recession.
American President Donald Trump caused significant shocks in global markets with his decision to raise tariffs to their highest level in 100 years. Just as investors began calming down, China retaliated by imposing 34% tariffs on all American products. As the trade war escalated, a recession loomed over investors. What could indicate this?
Banks give the first signal
The banking index in Europe recorded a decline of over 9% on Friday afternoon. Shares of giants like Deutsche Bank, Intesa Sanpaolo, Banco Santander, and UniCredit lost between 9% and 11% in stock markets. Swiss UBS, Europe's largest bank, saw its stock value fall by 8%. These banks face a dual challenge: significant exposure to the American market and weakened prospects for the European economy.
Economists warn that the new tariffs could increase costs for American consumers, which in turn could trigger inflation and elevate the risk of a recession. Mohamed El-Erian, Allianz's chief economic advisor, emphasises that although a recession is not inevitable, the risk of its occurrence is currently very high.
- People are going to realize that if the U.S. slows down, the rest of the world will slow down more than the U.S. So I don’t believe we’re going to continue to see dollar weakness - said El-Erian.
Commodities - the second warning signal
Advisors from the U.S. bank JP Morgan reported on Friday that the probability of a recession in both the United States and worldwide has climbed to 60%, up from 40%, in the wake of the tariffs introduced by Trump. The bank’s analysts highlighted that current American policies are viewed as the main threat to global economic prospects, noting that the country's trade approach has turned out to be less favorable to businesses than previously anticipated.
The effects of tariff increases amplified by retaliation could decrease U.S. business sentiment and cause supply chain disruptions. Other Wall Street brokerage houses, including Barclays and Deutsche Bank, warn that the American economy is more vulnerable to a recession this year due to the tariffs. Oil prices, which were down over 8% on Friday afternoon, seem to confirm these analyses.
