Global Markets Fall on Fears of Trade War Following Trump’s Tariffs

What Happened?

Stocks in Asia and Europe fell sharply following the announcement of a new round of tariffs by the Trump Administration. In Asia, Hong Kong’s Hang Seng Index dropped 13 percent below opening, which represents the biggest one-day decline in ten years.

Meanwhile Japan’s Nikkei 225 index lost 8 percent, hitting its lowest levels since October 2023. 

Stocks also fell in Europe, including Germany’s DAX, which dropped ten points at opening. Meanwhile U.S. stock futures dropped early Monday as the S&P 500 risked entering a bear market which means a drop of 20 percent or more from a recent peak.

Why it Matters

The market drop is part of the fallout from the recent tariffs imposed by the Trump Administration and the retaliatory tariffs imposed by Europe and Asia. President Trump sounded defiant over the weekend, indicating he had no intention of removing or halting any of the current tariffs. 

Instead, he said America should expect some short-term pain to make long term gains.

But it’s not clear exactly what those gains would be or how a trade war would achieve them. Some countries have signaled their interests in negotiating with the Trump Administration in hopes of getting the tariffs removed or halted.

But the biggest U.S. trading partners have so far chosen to respond with tariffs of their own. Collectively, the countries willing to negotiate so far represent a small percentage of American trade abroad. 

The tariffs by the Trump Administration represent the abandonment of mutually agreed tariffs, which has been the standard between the U.S. and its European allies since the end of the Second World War. 

The tariffs also indicate a seismic shift in thinking for American conservatives. For years they have argued that the government should not pick winners and losers in the marketplace because that is the job of free market capitalism. 

Now it appears the Trump Administration does seek to choose the winners in the marketplace with the stated goal of correcting trade imbalances through tariffs. But trade imbalances exist for several reasons, and one of them is consumer preference. 

American consumers are now being told by the Trump Administration they should only buy local or American made goods. That’s regardless of whether those goods cost more or are of a lower quality than foreign made goods.

Some countries such as China engage in business practices that would be illegal or considered unfair under American law. That includes state-owned enterprises or state-backed enterprises which allow Chinese firms to produce goods at a lower cost. 

Whether China will change long standing practices to avoid tariffs remains to be seen, but it is unlikely major changes will take place anytime soon.

How it Affects You

The effects of the new tariffs are already being felt in the form of increased market volatility and higher prices for a range of goods. 

Both of those trends are likely to continue while the new tariffs remain in effect.