Global Stock Market Plunge: Trump's Trade War with China Slams Markets
Economic Downturn: Trump-China Tensions Triggering Stock Market Plunges Worldwide - Financial Collapse: Trump's Trade Disputes with China Pressuring World Stock Markets
Investors around the world are feeling the heat as global stock markets take a nose dive, with the Dax taking a massive hit for the second day in a row. The panic started on Friday after China's retaliation to US President Donald Trump's announcement of increased tariffs.
"Today marks the beginning of the next trade war," said IG Market Strategist Christian Henke.
"Risk-Off" mode was in full swing, sending investors fleeing stocks and seeking safety in government bonds. Oil prices took a huge hit, plunging by more than nine percent at times.
The Dax dropped a steep 5.9 percent to 20,437 points, worse than the fall experienced during February 2022 when Russia invaded Ukraine. The EuroStoxx50 also fell by up to 5.4 percent. Bank stocks were among the hardest hit, with the European Volatility Index, a fear gauge on the stock markets, jumping up by 11.5 points - its highest daily increase in 3.5 years. Wall Street also got swept up in the sell-off, with futures on the US leading indices dropping around three percent.
China's answer to US tariffs included additional tariffs of 34 percent on all US goods, as well as export restrictions on certain rare earths. "China is striking back with an aggressive response... this is significant and may run for some time," said Tradition market strategist Stephane Ekolo from London.
Dax Weekly Losses Mount
The ongoing trade battle between US and China has experts worried. Tariffs could drive up prices, disrupt supply chains, and squeeze corporate profit margins. As a result, the Dax was headed for a weekly loss of more than seven percent. To make matters worse, the Dax is now more than ten percent away from its all-time high reached in mid-March, prompting strategists to call for a correction mode.
Trump announced on Wednesday that the US would impose a base tariff of 10 percent on all imports, with 20 percent planned for the EU and 34 percent for China.
Luxury Sector Takes a Hit
The interest-sensitive banking sector was particularly affected. The European banking index plummeted by up to 10.5 percent and was on its way to its worst day since March 2020. German banking giant Deutsche Bank saw a drop of up to 12.1 percent to €18.30, taking its largest daily loss since June 2022. Traders now expect a 90 percent probability of a 0.25 percentage point cut in the ECB's interest rate this month, with two further cuts expected by the end of 2025.
The luxury sector, heavily dependent on China, also took a big hit. French company LVMH lost 2.8 percent, while shares of Gucci owner Kering, Hermes, and Richemont fell between 3.4 and 7.5 percent.
Oil Prices Tumble and Copper Dips
The global trade war also had a negative impact on oil prices, with North Sea oil Brent falling by up to 8.5 percent to $64.14 per barrel. US oil WTI dropped by 9.2 percent to $60.81 per barrel. On a weekly basis, oil prices were heading for a decline of more than 12 percent each.
"The trade war has escalated, recession fears are rising, and oil demand growth is likely to take a significant hit," said oil analyst Tamas Varga. Stocks of oil and gas companies plummeted. The European sector index fell by 6.3 percent.
Even industrial metal copper felt the effect, with its price dropping by six percent to $8,802 per tonne. "The prospect of a global trade war and weaker economic growth will keep downward pressure on commodity markets for the time being," said ANZ Bank analysts.
The search for lower-risk investment options led investors back to government bonds once again. The yield on ten-year German bonds fell to 2.500 percent from 2.641 percent at the end of trading on Thursday.
Keywords: Dax, Stock market crash, Donald Trump, China, Oil, Banking Sector, Luxury Sector, Copper, Trade War.
==Foundations==The current trade war between the US and China, marked by significant tariff increases, has profound impacts and potential long-term consequences on global economies. The recent market crash, oil price drops, and impact on European industries highlight the far-reaching effects of these trade policies.
Current Effects
- Market Crash: The intensification of tariffs, with the US imposing a 34% tariff on China and China retaliating with similar measures, has led to a dramatic downturn in global stock markets. The Dow Jones, S&P 500, and Nasdaq all suffered substantial losses, resulting from investor fears regarding the economic impact of the trade war[2][3].
- Oil Price Decline: The price of crude oil has plummeted, reaching its lowest level in recent years, due to reduced economic activity and lower demand expectations resulting from the trade war[2][3].
- European Industries Impact: European markets have also experienced negative effects, with significant losses in major indexes such as the DAX, CAC 40, and FTSE 100. This is a reflection of investor concerns regarding reduced trade volumes and economic growth[3].
Potential Long-Term Consequences
- Economic Slowdown: The trade war could lead to a global economic downturn by reducing trade volumes, increasing costs for businesses, and potentially inducing a recession. This may affect not just the US and China but other economies as well[1][4].
- Financial Sector Pressure: Though not directly targeted, banks face pressure due to reduced borrowing, slowed economic activity, and increased risk related to loan defaults. This could lead to tighter financial conditions and diminished economic confidence[4].
- Inflationary Pressures: Tariffs might also lead to rising inflation as higher tariffs translate into higher prices for consumers. This could complicate monetary policy decisions for central banks[3][4].
- Global Trade Shifts: Countries such as South Africa and Taiwan are exploring strategies to diversify their exports to offset the impact of tariffs. This could lead to long-term changes in international trade patterns[2][3].
In summary, the ongoing trade war has immediate and significant consequences for stock markets and commodity prices, while its potential long-term effects include global economic slowdown, financial instability, and broader changes in international trade dynamics.
The ongoing trade war between the US and China has profoundly impacted the global economy, causing a stock market crash, import tariff increases, and oil price declines. As a result, the Dax in Germany and various other European stock markets took a massive hit, with many industries, including banking and luxury sectors, also sustaining significant losses. The interest-sensitive banking sector was particularly affected, with the European banking index plummeting. Moreover, the price of crude oil plunged, reaching its lowest level in recent years, while even industrial metal copper felt the effect and dropped in price.
By 2025, the increased tariffs and the resulting uncertainty could lead to a recession and inflationary pressures, affecting the economy on a global scale. As investors seek safe havens, it is apparent that the counsel of IG Market Strategist Christian Henke and Tradition market strategist Stephane Ekolo rang true: the beginning of the next trade war has significant and potentially long-lasting implications.
