​Last week, the Trump administration imposed significant tariffs on imports, including a minimum 10% rate on almost all imported goods, with higher rates for 60 countries with trade deficits.
The measures, dubbed “Liberation Day,” intend to achieve ‘economic independence‘ and revive American manufacturing.
However, the moves have raised serious concerns about their impact on global economic stability in the light of financial turmoil.
Markets in Freefall
The introduction of new tariffs has caused stock markets around the world to plummet.
On 4 April, 2025, the FTSE 100 fell 4.95%, marking its biggest daily decline since the start of the COVID-19 pandemic. Germany’s DAX fell 5%, France’s CAC 4.3%, and Italy’s FTSE MIB nearly 6.5%.
In the U.S., the S&P 500 and Nasdaq fell more than 4.5% and nearly 6%, respectively.
Investors began to shift capital to safer assets such as government bonds, pushing the yield on the 10-year U.S. Treasury note below 4%.
Recession Looms
JPMorgan analysts have raised the probability of a recession in the U.S., and possibly globally, to 60%, up from 40%, after the announcement of new tariffs.
The tariffs essentially represent a significant tax hike — the average tax rate has increased by 24%, equivalent to 2.4% of U.S. GDP and could be the largest tax hike since World War II.
The measures are expected to reduce business activity, raise commodity prices, and ultimately slow economic growth.
Other Countries Retaliate
China responded to the U.S. move by imposing a 34% tariff on all U.S. goods starting 10 April, restricting rare earth exports, and filing a case at the World Trade Organisation condemning the unilateral U.S. action.
Other countries, such as Canada, the European Union, the UK, and Vietnam, are weighing up their options whilst also considering retaliatory measures or seeking a renegotiation of former trade agreements.
The European Union, in particular, is seeking to strengthen its domestic market and support the multilateral trading system, positioning itself as a stabilising force in global trade.
Impact on Global Supply Chains
The imposition of tariffs puts pressure on global supply chains, particularly in industries that rely on international trade where the U.S. market represents a significant export market.
For example, European manufacturers have become concerned about a possible influx of cheap Chinese goods into their markets as a result of trade flows diverted by U.S. tariffs.
This could lead to excess capacity and lower prices, which would undercut European industry.
Emerging Pressures: Asia and Americas
Countries in Southeast Asia and Latin America could see lower demand for their goods, leading to slower growth, reduced incomes, and possible unemployment.
Mexico, one of the United States’ largest trading partners, could see significant disruptions to its auto and agricultural industries.
These economic pressures could further exacerbate global inequality and destabilise regions already vulnerable to external shocks.
Safehavens in Times of Uncertainty
However, currency markets in Japan and Switzerland are making gains in recent days as the Japanese Yen and Swiss Franc are judged as ‘safe currencies‘ in times of uncertainty.
Even the U.S. dollar, a global reserve, has fallen almost 3% last week against a major basket of global currencies as U.S. trade partners face exponential tax hikes via the tariffs.
Economic Forecast for 2025
The new U.S. tariffs are likely to disrupt global markets, harm emerging economies, and create instability in international trade relations.
Expect to see some trading agreements renegotiated, in favour of Washington, however, major trading partners such as the EU and China are unlikely to remain silent in the face of major tax hikes.
If anything, Trump’s measures will reshape the international economic system and have deep ramifications for the balance of power.
Stay tuned to Daily Euro Times for the latest insights!
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