Stocks plummet due to Trump's tariffs

BarcelonaEuropean stock markets have deepened their losses this Friday aftera Thursday marked by red numbers in reaction to the wave of tariffs announced by US President Donald Trump. Stock markets around the world have seen another day of declines due to fears of a recession in the US and across the global economy caused by the new trade war.

In Spain, the benchmark index, the Ibex 35, closed the session with a 5.83% drop, more than the 1.2% decrease with which it closed on Thursday. The decline was led by banks, with notable falls also among companies with operations in the US. The situation is similar to the rest of Europe. The continent's main stock market, London, fell 4.95%, the same decline as the DAX in Frankfurt. In Paris, the CAC-40 registered a drop of 4.26% and the FTSE MIB in Milan took the biggest hit, with a drop of 6.53%.

In the United States, markets also had another day of red ink. The Dow Jones, one of the benchmark indexes on Wall Street, registered a drop of 3.59% at six o'clock in the evening, which ended up widening to 5.5% at the close; while the S&P 500 also fell 5.97%. The Nasdaq, which groups together technology companies, lost 5.82% at the close of the day.

The price of Brent crude oil, the European benchmark, also continued its downward trend, sinking 5.39% to €66.20 per barrel. The Texas oil price, the most widely used in the Americas, also fell 6.32% to $62.71. Crude oil has thus accumulated several days of declines after falling more than 6% on Thursday.

Reaction to the uncertainty caused by Trump

Friday's declines, therefore, build on those recorded on Thursday, when markets reacted to Trump's appearance at the White House in which he announced a widespread 10% tariff increase and also indicated which countries would face additional tariffs. The US president's Wednesday accusations against his country's main trading partners—such as the European Union, China, Japan, the United Kingdom, and South Korea—and the imposition of some of the largest trade levies on them increased investor fears of a slowdown in economic activity and triggered selling in financial markets across the board.

Added to this is the fact that the affected countries have responded by announcing tariffs comparable to those imposed by Washington. This Friday, Beijing has announced a 34% tariff on goods from the US, the same rate Trump announced for Chinese imports. The European Commission has also announced a strong counterattack, but prefers to exhaust all avenues of negotiation with the US administration first.

The stock market crash is the private sector's response to the trade war initiated by the US. "Trump's policy has generated uncertainty in general, and the commitment to tariffs even more so," explains Xavier Ferrer, president of the international economics committee of the College of Economists of Catalonia. According to Ferrer, the tariff increase "aims to encourage foreign companies to set up in the US" to produce there and thus boost the country's industry. But to move production, "they need economic stability," and Trump doesn't offer it, as he has broken "the internal and external consensus of the last 80 years," not only with tariffs, but also with his support for Russia, criticism of the EU, attempts to legislate outside Congress, and threats to annex Greenland.

"The same thing is happening in the stock market," the economist adds. "Many American companies have production in other countries," so trade tariffs have a negative impact on them. This situation has raised alarm bells about a possible recession in the United States and a slowdown in the global economy, which is reflected in the markets. "The stock market anticipates situations," and the downward reaction of the last two days is due to the "fear" of a slowdown, says Ferrer.

This uncertainty was at the heart of Friday's speech by Jerome Powell, chairman of the Federal Reserve (the Fed, the US central bank), who indicated that the tariffs were "higher than expected." "We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation," he added, casting doubt on whether the institution will cut interest rates in upcoming meetings.

Another day of losses in Asia

Reactions to the tariffs announced by Washington last Wednesday have affected markets across the globe. In Asia, stock markets have seen two consecutive days of sharp losses since Trump's announcement. The Tokyo Stock Exchange was the hardest hit, closing Friday down 2.75%, while Hong Kong fell 1.52% and Seoul 0.86%.

In fact, the governor of Japan's central bank, Kazuo Ueda, warned this Friday that US tariffs "will exert downward pressure" on the Japanese and global economies.