This was in response as global stock markets plunged on Wednesday morning. This was the first full month that President Donald Trump’s tariffs on steel and aluminum began to impact. Initially announced in February, these tariffs have now taken effect, igniting fears of escalating trade tensions between the United States and its trading partners, particularly China and the European Union.
The tariffs—particularly the broad 10% national security levies—have only further exacerbated the chaotic state of the global economy. The EU’s forthcoming reply with its new anti-coercion instrument will be pivotal. This far-reaching instrument gives the bloc the tools to inflict severe economic punishment to states deemed guilty of weaponising commercial dealings. This might mean stripping intellectual property or market access privileges from countries that violate these obligations.
As a countermeasure, China plans to impose an initial 34% tariffs on US products as of Thursday. The ongoing dispute between the two agencies has rapidly escalated into a war of words. Chinese officials clearly are ready to mount a vigorous response to US trade actions.
“China will fight to the end if the US side is bent on going down the wrong path,” said Lin Jian, a spokesperson for China’s foreign ministry.
The carnage in the financial markets was clear on Friday morning as British stock markets and those in London and throughout Europe opened down over 7%. UK 30-year bond yield has surged to highest level since 1998. This dramatic increase is indicative of how investors have become increasingly anxious about the stability and future of transatlantic trade relations. At the same time, the Japanese yen strengthened by 0.6% against the dollar — a sign that investors were flocking to safer assets as fears mounted.
Combined with the imposition of tariffs, all this has led to a historic selloff in US Treasury markets. This has put further pressure on an already complex financial environment. “US Treasury markets are experiencing an incredibly aggressive selloff as we go to press, adding to the evidence that they’re losing their traditional haven status,” stated Henry Allen, a strategist at Deutsche Bank.
In response to lagging global trade developments, the US government is refocusing on “tailored deals” with our most important trading partners. They are doing so in conjunction with strong allies, primarily Japan and South Korea. This tactic is meant to dampen the damage from what we know will be trade war-related disruption, while still trying to preserve some degree of diplomatic goodwill.
At the same time, the European Commission is discussing enforcement tariffs on US soybeans in retaliation for American trade policy. This mutually exclusionary policy logic highlights the rising confrontation and towards a larger trade war.
Kao Kim Hourn, ASEAN’s secretary general, admitted that the pressures from these tariffs were increasing. He underscored the need for all countries to rally together, in solidarity. “To remain relevant and resilient in a world where economic chaos is fast becoming the new normal, we must act boldly, decisively, and together to reaffirm ASEAN’s commitment to a stable, predictable and business-friendly environment,” he remarked.
Markets are still trying to figure everything out with the new landscape defined by increased trade barriers and retaliation. China’s offshore yuan just fell to a record low against the US dollar. This sudden drop underlines how quickly tariffs already put in place can impact global currencies.
As the day progresses, analysts continue to monitor developments closely, understanding that trade wars produce no winners. Most economists agree that protectionism leads countries into a dead end. Rather, these investments are best complemented by a collaborative approach that recognizes the shared economic opportunity much more abundant.