A global economic alarm has been triggered by the unprecedented tariffs imposed by US President Donald Trump, sending investors into a panic and wiping trillions of dollars off the value of global stock markets.
Trillions of dollars have been wiped off the value of global stock markets in recent days, sending investors into a panic. The unprecedented tariffs imposed by US President Donald Trump on most trading partners of the United States are being blamed for the volatile market conditions.
A tariff is a tax imposed on imported or exported goods.
It can be used as a trade policy tool to protect domestic industries, raise revenue, or influence international trade agreements.
Tariffs can take various forms, including ad valorem (ad valorem) (percentage of the good's value), specific (specific) (fixed amount per unit), and compound tariffs.
The World Trade Organization (WTO) regulates tariff practices among member countries to promote fair trade.
Tariff rates can be negotiated between countries through free trade agreements or imposed unilaterally by governments.
The impact of these tariffs is expected to be far-reaching, with much higher manufacturing costs, falling business confidence, market volatility, and supply chain disruptions. ‘The tariffs are a protectionist measure that will only harm American businesses and consumers in the long run.’ Asia has been hit particularly hard, with levies of over 40% on some key countries prompting nations such as Vietnam, Taiwan, and Indonesia to seek new trade deals with Washington.
China, the only major economy to order retaliatory tariffs on US imports so far, has imposed extra levies of 34% on American goods. These tariffs are set to take effect this Thursday, and China’s Foreign Ministry has criticized Trump’s actions as ‘economic bullying’ and ‘inconsistent with international trade rules.’
The US stock markets regained some lost ground on Monday, but the situation remains precarious. The odds of a global recession have increased to 60% by the end of the year, according to JP Morgan. Deutsche Bank warned that the new tariffs would have ‘immense global implications for 2025 and the years and decades ahead.’
A global recession occurs when a significant decline in economic activity affects multiple countries worldwide.
It is often triggered by factors such as overproduction, trade wars, and financial crises.
The effects of a global recession can be severe, including high unemployment rates, business closures, and reduced consumer spending.
According to the International Monetary Fund (IMF), the 2008 global financial crisis led to a 2.2% decline in world GDP.
Recovery from a global recession typically requires coordinated policy responses from governments and international organizations.
The US economy has averaged nearly 3% growth since the end of the COVID-19 pandemic but now faces what research house Morningstar called a ‘self-inflicted economic catastrophe’ as a result of Trump’s tariffs. S&P Global raised its probability of a US recession to between 30% and 35%, while Goldman Sachs increased the chances of a US recession in the next year to 45%.
The United States has a mixed economy, combining elements of capitalism and socialism.
It is the world's largest economy, with a nominal GDP of over $22 trillion.
The US economy is driven by consumer spending, accounting for approximately 70% of GDP.
Key sectors include technology, healthcare, finance, and manufacturing.
The Federal Reserve, an independent agency, regulates monetary policy to maintain low inflation and full employment.
The situation is not just affecting the US, but also the global economy. The European Union has agreed on around €26 billion ($28.46 billion) of new levies in response to Trump’s earlier tariffs on aluminum and steel. India, which now faces a 26% levy on exports to the US, does not plan to retaliate against Trump’s tariffs.
Despite the dire predictions, some positive news emerged when two Trump advisers told US media that more than 50 countries had been in touch to seek new trade deals with Washington. However, experts warn that if Trump is unwilling to make deals with US trade partners, the stock market rout would soon be followed by a ‘collapse in household and business confidence.’
The UK-based economic research house Capital Economics warned that US inflation could rise above 5% and that the recession would worsen if the US Congress ‘fails to pass timely fiscal stimulus because of Republican infighting.’ The US Federal Reserve boss Jerome Powell last week warned the tariffs would likely cause US inflation to rise and growth to slow.
The situation is complex, and there are many variables at play. However, one thing is clear: Trump’s tariffs have triggered a global economic alarm, and the consequences will be felt for years to come.
