Described as a “significant risk” among continuous volatility in the financial markets, the International Monetary Fund (IMF) has expressed concern over the possible hazards Donald Trump’s broad tariff plans provide to the global economy. IMF Managing Director Kristalina Georgieva has advised the US and its trading partners to refrain from aggravating tensions even further as stock markets continue to show falls all around. Increasingly viewed as a main destabilising factor in the global economy is the growing trade war.
“We are still evaluating the macroeconomic consequences of the declared tariff measures, but they represent a significant risk to the global outlook at a time of sluggish growth,” Georgieva said. She underlined the need for distance from activities that could compromise the state of the world economy. “It is crucial to steer clear of actions that would jeopardise the global economy even further. We kindly ask the United States and its trading partners to cooperate constructively to lower uncertainty and ease trade war tensions.”
This caution from the IMF captures the growing anxiety among international leaders, investors, and economists about the long-term consequences of Trump’s trade policy. Aimed at lowering the trade imbalance and claiming American supremacy in foreign markets, trade war policies have resulted in a sequence of rising taxes on goods from China, the European Union, and other world actors. On goods in many different sectors, these tariffs imposed by the Trump administration vary from 10% to 50%.
How are trade war reactions of stock markets under Trump?
Declared by Trump as part of his “Liberation day” ideas, the tariff proposals have caused a notable sell-off in financial markets. Almost every country has slapped tariffs ranging from 10% to 50% which have wiped almost $2.5 trillion off Wall Street stocks and caused notable losses in other financial hubs. The trade war’s effect caused significant markets in Asia and Europe to suffer more losses, hence the sell-off persisted Friday.
Tokyo’s Topix lost 4.5%; Japan’s Nikkei index dropped over 3%. This represents a 9% decrease for the week. Kospi of South Korea closed down 1.3%. Declining by 1.5% on Thursday and another 1.17% on Friday, the FTSE 100 had its lowest day in London since late August. Among the worst hit were banking equities; Standard Chartered with an Asian concentration dropped by about 4%. In other European markets, Germany’s DAX fell 0.71%, and France’s CAC 40 index dropped 0.68%. Fears of a world recession brought on by the trade conflict also caused Australia’s S&P/ASX 200 index to drop 2.2%.
The reaction of the market indicates that investors are growing more concerned about the worldwide effects of a protracted trade war. One major issue is the likelihood of growing expenses for consumers and companies all around. Tariffs can raise the cost of imported goods, therefore generating inflationary pressures that influence everything from raw materials to completed commodities. Eventually, higher prices lower consumer expenditure and company investment, therefore slowing down economic growth.
“Despite months of sabre-rattling by Donald Trump, markets appear to have been unprepared for the depth and breadth of tariffs announced by the White House,” Derren Nathan, head of equity research at Hargreaves Lansdown, said Other industries saw a sell-off as well; banks, industrials, and energy companies were badly losing value. As investors fled to safer assets, typical defensive industries, including utilities and consumer basics, experienced some increases.
Why Are Crisis Oil Prices Drooping?
The worldwide benchmark for oil, Brent crude, dropped sharply by 3.8% to $67.48 a barrel, the lowest level since early December 2021. This decline in oil prices reflects more general worries about the possible effects of the trade war on the world economy, therefore feeding more anxiety about a recession.
Geopolitical and economic events have a great impact on oil markets. Two of the biggest oil consumers in the world, the US and China, have engaged in a trade war that fuels worries about a declining worldwide crude oil demand. Rising tariffs and tensions make it more probable that world trade volumes would drop, hence lowering energy demand. This has, therefore, led to declining oil prices, which adds to the already precarious situation in world markets.
How is the Technology Sector Affected?
Particularly in the US, the technological industry faced the worst of the sell-off. Renowned for its large tech tilt, the Nasdaq index fell almost 6%. Because tech firms depend on foreign supply networks and marketplaces for both manufacturing and sales, they have been particularly exposed to the trade war. Many big US tech businesses import critical components from China and other nations impacted by tariffs, so they pay more, and their operations are disrupted.
Particularly between the US and China, the trade war has also sparked questions about the direction of intellectual property protection and technology exchanges. Many tech companies are concerned about the possibility of losing access to Chinese markets or running across more legal obstacles as tensions grow. This uncertainty has added to the rapid decline in tech equities, which has affected more general market performance significantly.
How Would Pharmaceutical Companies Be Affected?
After Trump’s remarks regarding US tariffs on drugmakers still under consideration, Indian pharmaceutical stocks suffered as well. Friday’s NSE Nifty Pharma index dropped more than 6%, a dramatic turn from the day before when hopes for an exemption from the new US taxes had kept the industry afloat.
Particularly susceptible to the trade war are pharmaceutical companies, who frequently rely on worldwide supply lines for raw materials and completed goods. Higher production costs resulting from US taxes on medicine imports could eventually be passed on to consumers. Companies depending on Chinese markets for sales could also suffer greatly should their access to these markets be limited.
Governmental Reaction to the Crisis?
The government of the United Kingdom has said that it is also consulting on possible retaliatory moves and is actively talking with the US to land a trade agreement. James Murray, the Exchequer Secretary to the Treasury for the United Kingdom, said companies would be contacted over the possible response. “The next level of involvement is requesting opinions from businesses on what conceivable actions in terms of the UK reaction would look like. Our whole attention is on a deal; we want one.
Governments all across are trying to handle the aftermath of the trade war. Many nations are trying to negotiate trade deals that would help to offset the negative consequences of the growing tariffs or apply their retaliation levies. Also under discussion are ways to protect local companies and consumers from the growing expenses related to the trade war.
Why do bond markets respond to tariff policies?
The tariff plans have caused notable swings in bond markets; demand for UK government bonds has surged as investors turned to safe- havens. Since September, UK bond yields have slumped to their lowest points. After the US tariffs were revealed, the two-year UK government bond yield dropped 0.29 percentage point. The lowest since February, the 10-year gilt yield likewise fell by 0.1%. These changes offer UK Chancellor Rachel Reeves, who had earlier declared welfare cuts to help with growing borrowing expenses, some relief from strain.
Given the trade war generates more uncertainty, investors are looking for government bond safety more and more. Bonds—especially those issued by solid countries like the UK—become more appealing to risk-averse investors as markets and commodities show dramatic falls.
What ramifications for UK interest rates follow from this?
Given the economic upheaval the trade war generates, traders are now betting on several interest rate cuts by the Bank of England. Three quarter-point cuts by the Bank of England in 2025 are almost entirely priced in, as the money markets predict roughly 74 basis points in reduction. Reflecting the increasing economic uncertainty, the likelihood of a rate drop in early May is now 86%, up from roughly 75% the day before.
A common reaction of central banks in times of economic crisis is a drop in interest rates since lower rates can boost consumer expenditure and company investment. These rate reductions, however, also represent worries about the possible global economic downturn and the long-term consequences of the trade war.
Finish
To sum up, Trump’s trade war policies’ broad influence is still causing upheaval in the world economy. The US and its trading partners must continue to pursue positive communication to help to lower trade war tensions and stabilise the world financial system as markets experience more volatility and worries of a recession intensify. Already, the trade war has caused significant losses on financial markets, increasing inflationary pressures and mounting global recessionary fears. The longer the trade war lasts, the more likely it is that stability in markets all around will be jeopardised, as well as economic development and investment.
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