The new trade war means ongoing uncertainty for markets

Barriers to open trade are rising at a pace not seen in decades, as the initial brunt of President Donald Trump’s sweeping tariffs proliferate through major economies. What began as a trade spat during Trump’s first term has broadened into a worldwide reshuffling of supply chains, with tariffs, anti-dumping duties, and import quotas escalating across the globe. 

The U.S. alone has nearly doubled its average tariff rate since 2016, returning to levels last seen in the aftermath of World War II. As proposed measures are enacted, the average U.S. tariff rate could approach 18%, the highest in nearly a century. Global peers are responding in kind: the EU, China, Japan, and Mexico have introduced new import restrictions or retaliatory levies, many targeting key sectors such as steel, autos, EVs, and semiconductors.

A key inflection point came on April 2nd, “Liberation Day,” when the president announced sweeping tariffs on virtually all trading partners. Markets, not expecting anywhere near the proposed levels, tumbled dramatically, placing stress on financial systems globally. Tariffs were ultimately rolled back for all countries less China, which retaliated with tariffs of their own. Communication between Washington and Beijing has broken down until multiple demands are met. What followed was a tit-for-tat escalation that has led to a broad 90-day pause but has left the two countries locked in a high-tariff standoff. U.S. tariffs on Chinese goods now range from 145%-245%, as well as a 10% universal tariff, while Chinese tariffs on U.S. imports stand around 125%. 

China has also suspended exports of critical minerals essential to aerospace, defense, and semiconductors, among others. Meanwhile, the U.S. has selectively excluded many electronics from reciprocal tariffs. Asset prices have remained extremely volatile throughout, with swings across equities, bonds, and foreign exchange. 

“I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.” – James Carville 

The ripple effects of the U.S.-China trade standoff are being felt around the globe. As supply chains shift and tariff regimes become more complex, countries outside the U.S. and China are facing a range of outcomes. Some are contending with higher input costs, disrupted trade flows, and uncertainty around future demand, particularly in industries such as electronics, autos, and semiconductors. Others are seeing new opportunities as firms seek to diversify their production away from China. Nations with favorable trade terms, established infrastructure, or competitive labor markets may benefit from a reordering of global manufacturing footprints. Still, these developments bring their own set of challenges, as countries weigh potential gains against rising geopolitical tension and the unpredictability of global policy shifts. 

Taken together, recent data, geopolitical developments, and policy responses are adding layers of complexity to the policy environment. While inflation has cooled for now, the evolving tariff landscape and its downstream effects on global trade, sentiment, and corporate behavior remain fluid. 

With major central banks continuing to balance growth and price stability mandates, and earnings season underway, markets may continue to react to forward-looking signals in a more sensitive manner. The coming weeks could offer more clarity on how business and policy makers are adapting to this uncertainty. 

Arjun Kaushik contributed to this article.