The US trade policy shift has triggered global alarm bells. President Trump’s swift implementation of steep tariff hikes—with some reaching up to 125%—has reawakened fears about a looming global credit crisis. While intended to reduce the U.S. trade deficit, these aggressive measures are instead unsettling financial markets and slowing global growth.
🌍 Global Financial System Faces Four Major Risks
Experts now identify four critical risks fueling the negative outlook for credit markets worldwide:
- Persistent trade conflicts and accelerated de-globalisation
- Increased financial market instability
- Sovereign debt concerns due to government budget pressures
- Rising geopolitical tensions across key economies
These interconnected risks have worsened in light of the US’s abrupt policy shifts.
🛃 Tariff Hikes Break Historic Records
The recently imposed 10% baseline tariffs and potential 50%+ reciprocal tariffs on over 60 countries represent the most aggressive import tax policy in a century. While some tariffs are paused for 90 days (excluding China), the move has already sent shockwaves through the global market.
📉 “Trump Put” Returns Amidst Market Chaos
Despite market crashes and public concern, President Trump has doubled down, calling the tariffs a necessary “medicine.” Though stock and bond markets fell dramatically, his administration shows little sign of backing down unless there’s a visible drop in trade deficits.
📉 US Economy Feels the Pinch
The US economy, once growing at a solid 2.8%, now risks entering a technical recession in 2025. Manufacturing revival goals remain uncertain as automation limits job creation, and new factories require years of investment to scale.
Adding to the pain, over 54% of US families with market-linked retirement plans are vulnerable to volatility—raising political heat ahead of the 2026 midterms.
🏦 Global Monetary Policy Under Pressure
As the global economy cools, central banks are divided. While some like the European Central Bank (ECB) consider rate cuts, others like the Fed hesitate due to stagflation. Tariffs have created an inflationary storm in the US while deflating export economies that avoided immediate retaliation.
🇨🇳 China, 🇪🇺 EU React Strongly
China has countered US tariffs with 34–50% duties and restricted exports of key minerals. With China already battling deflation and slow growth, these tensions elevate its financial risks.
Meanwhile, the European Union, facing 21% export dependency on the US, has announced EUR 21 billion worth of counter-tariffs—though talks are underway to prevent escalation. Countries like Germany and Ireland stand most exposed.
📌 Additional Insights:
The growing disconnect between protectionist policies and global economic interdependence may have long-term repercussions beyond 2025. If trade wars continue unchecked, investment uncertainty, recession risks, and supply chain disruptions could become the “new normal.”
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