Former President Donald Trump has launched new tariffs on several major U.S. trade partners. The decision has shaken markets and raised fears of a global trade conflict. These new tariffs are set to impact countries like China, Japan, and the European Union (EU). The move comes after years of rising trade tensions between the U.S. and these nations.
Trump’s Tariffs Shake the Global Economy
Trump’s administration introduced a set of tariffs designed to balance trade imbalances. The new taxes are roughly half the amount that foreign countries charge on U.S. goods. The White House justifies the move by pointing to issues like value-added tax (VAT) policies, subsidies, and alleged currency manipulation by foreign governments.
The tariffs are high. China faces a 34% tax, Japan 24%, and the EU 20%. However, Canada and Mexico are exempt under the United States-Mexico-Canada Agreement (USMCA). The new rates are already causing concern, especially for industries that rely on exports, like the European auto industry.
Impact on European Automakers
One of the hardest-hit sectors is the European auto industry. Automakers such as Volkswagen, BMW, and Mercedes-Benz already pay a 25% tariff to export cars to the U.S. Now, additional fees could deepen the pressure on these companies. Many fear that higher tariffs will raise car prices in the U.S. market, hurting both manufacturers and consumers.
Global Stock Markets React to Trade Tensions
The news of new tariffs led to sharp losses in global stock markets. Investors quickly became worried about the potential for a global trade war. The S&P 500 futures dropped over 3%. This marked the worst day for U.S. stocks in nearly three years.
The Euro STOXX 50 index, which tracks major European stocks, fell 2.2%. Companies in export-heavy sectors were hit the hardest. Adidas and Puma, two of Europe’s largest sportswear brands, saw their shares drop by around 10%. Investors feared that the ongoing trade tensions would harm these companies’ market share, particularly in the competitive U.S. market.
In France, EssilorLuxottica, a major eyewear manufacturer, saw its stock fall more than 4%. Other French companies, including major banks and luxury goods brands, also saw losses. The CAC 40 index dropped 1.8%. Societe Generale, BNP Paribas, and Credit Agricole lost between 3% and 4%. Luxury brands like Kering and LVMH also lost nearly 3% in value.
Support for European Companies Focused on Local Markets
While global stocks suffered, some European companies focused on internal markets found support. Investors expect the EU to retaliate with tariffs of its own, which could hurt American companies. This led to modest gains in some sectors. Defensive sectors like food, utilities, and telecommunications saw a boost. Companies like Danone, Carrefour, E.ON, Iberdrola, Enel, and ENGIE all rose by 1-2%. Telecom companies such as Telefonica, Orange, Vodafone, and Swisscom also posted small gains.
Currency Markets See Shift: Euro Strengthens, Dollar Weakens
As a result of Trump’s tariffs, the U.S. dollar weakened. Investors moved away from U.S. assets, fearing economic instability. The euro rose 1.2% to $1.0990, its highest level in six months. The British pound also strengthened, rising 1% to $1.3122.
At the same time, the dollar fell against the Swiss franc, dropping by 1.5%. This highlights the growing preference for stable currencies in times of uncertainty.
Investors Seek Safe Havens: Bonds and Gold Rise
In response to the trade turmoil, investors sought safety in bonds and gold. The German 10-year Bund yield dropped by 6 basis points, reaching 2.65%. Spanish and Italian government bonds also saw their yields fall. Investors rushed to buy gold, pushing its price to a record $3,167 before it retreated by 0.5%.
Energy Prices Drop, Bitcoin Holds Strong
Energy markets were also affected. Oil prices fell as global demand expectations weakened. WTI crude dropped 3.5% to below $70 per barrel. Brent crude also fell 3% to $72. Natural gas futures in Europe dropped by 2% to €40.2 per megawatt hour.
However, Bitcoin stood out among the market downturn. Despite the global market pressure, Bitcoin gained 1%, reaching $83,368. Cryptocurrencies continue to show resilience as investors look for alternative investments.
Will Trade Tensions Escalate?
The future of global trade remains uncertain. Trump’s new tariffs have already created waves in markets, and many are watching closely for potential retaliation from other countries. While the U.S. has firmly implemented these tariffs, it is still unclear how China, Japan, and the EU will respond.
The next few weeks will be crucial. Will this situation escalate into a full-blown trade war? Investors, governments, and businesses are preparing for all scenarios.