​Last week, President Donald Trump reignited global trade tensions by continuing his tariff policy. During “Liberation Day,” the President announced a sweeping plan, imposing a baseline 10% tariff on all imports and sharply escalating tariffs on countries deemed to have unfair trade practices. For those countries, tariffs of up to 50% were announced. China was hit hardest, with tariffs reaching as high as 145%. While many countries chose to limit retaliatory measures and instead focus on reaching an agreement with the US, China imposed matching tariffs of up to 125% on US products, blacklisted several American companies, and restricted exports of key materials. The latter includes rare earth metals, which are crucial in today’s world as they are vital for many technological products. In response to global backlash, Trump announced a 90-day delay on the tariff increases for most countries (excluding China), attempting to contain diplomatic fallout while maintaining a tough stance on trade imbalances. Amid further concerns that tariffs on key growth-spurring sectors such as technology and pharma could backfire, the administration announced additional reprieve by limiting tariffs on such critical goods.

Since President Donald Trump's inauguration, his administration has threatened or implemented a series of tariffs aimed at reshaping US trade relationships and bolstering domestic industries. These measures have targeted a range of imports, including steel, aluminium, and various goods from Canada, Mexico, and China, with the intention of reducing trade deficits and addressing national security concerns. In the past two weeks, the administration has intensified its trade policies by imposing a 25% tariff on imported automobiles and certain automotive parts. Announced on 26th March 2025, these tariffs are set to take effect on 2nd April 2025 and are expected to significantly impact both foreign automakers and domestic companies that rely on global supply chains. Consumers may face increased vehicle prices, with estimates suggesting potential increases of up to $12,500 per imported vehicle. ​Concurrently, the Federal Reserve has maintained the federal funds rate at a target range of 4.25% to 4.50%. The decision reflects the central bank's cautious approach amid rising inflation and economic uncertainties exacerbated by ongoing trade tensions. Policymakers are holding onto their pace of two rate cuts as projected at the beginning of 2025. The Fed also highlighted that tariffs make their decisions more difficult, as it likely alters the inflation rate. ​

In his current presidency, President Trump's aggressive tariff strategy has significantly impacted financial markets, introducing heightened volatility and uncertainty. The new administration has already introduced unprecedented tariffs within its first two months. Figure 1 provides an overview of currently imposed and threatened tariffs. These tariffs imposed by the US on other countries has also led to significant retaliations from those countries, which exacerbates the issue even further. The fact that the Trump administration also threatens tariffs nearly on a daily basis further bolsters global uncertainty. These tariffs have also disrupted established trade relationships and supply chains, leading to increased costs for businesses and consumers alike. Investors are now grappling with the potential for slower economic growth, as higher import costs contribute to rising inflationary pressures. Market participants also showed some optimism on a Trump administration for the anticipated resolutions of ongoing wars, especially in Israel and the Ukraine. While most successful in Israel, the situation between Russia and Ukraine remains highly unstable. These developments have undermined investor confidence, compelling market participants to reassess risk exposures and seek refuge in more stable assets. Consequently, the financial markets are navigating a complex landscape, where protectionist policies challenge the principles of free trade that have long underpinned global economic growth.

​US equities have had an impressive run so far in 2024. Since July, however, markets have generally trended lower. With one exception in April, equities rose steadily until July. This resulted in peak performances of 50% for the Magnificent 7 and 25% for the Nasdaq. The Dow Jones Industrial Average gained just 5%. The stark differences in performance can be explained by what drove the stock market. With most macroeconomic indicators showing worrying signs, the labour market has so far offset most of the negative signals. However, the labour market is also becoming more worrying as unemployment rises. Interest rates were originally expected to be cut relatively early in the year, which also boosted equities. With no rate cuts this year and considerable uncertainty as to when the first cut will be made since the increases, equity markets have suffered. Now that the labour market looks weaker than before, the equity market is in a difficult position. These concerns led to a decline in July and early August, culminating in the unwinding of the USD-JPY carry trade, which caused huge losses. This, combined with recession fears, led to sharp declines around the world and a huge spike in volatility. Since then, equities have rallied, recovering much of their earlier losses. Figure 1 shows the performance of various US equity indices in 2024.