Trump’s Tariffs Trigger Global Market Turmoil

The global financial landscape has been thrown into disarray following the announcement by former U.S. President Donald Trump of a blanket 10% tariff on all imports from trading partners, coupled with additional levies, including a 17% tariff on Israeli goods. This move has sent shockwaves through stock exchanges worldwide, sparking fears of a potential global recession and escalating inflation.

Speculation is rife regarding the motivations behind this policy, with some analysts suggesting it’s a deliberate attempt to manipulate markets, while others view it as a high-stakes negotiation tactic. Regardless of the intent, the immediate impact has been significant and far-reaching.

Stock Markets in Freefall

The announcement of the tariffs triggered an immediate and sharp decline in stock values across the globe. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all experienced their most significant two-day drops as the initial panic surrounding the Coronavirus pandemic during Trump’s first term. Specifically, the Dow plummeted by 9.3%, the S&P 500 by 10.5%, and the Nasdaq by 11.4% over Thursday and Friday.

The sheer scale of the losses is staggering.Approximately $5 trillion in market capitalization was wiped out from S&P 500 companies alone by the end of Friday, marking a record two-day decline. This unprecedented volatility has prompted leading financial institutions to reassess their economic forecasts.

JP Morgan, for instance, has significantly increased its probability assessment of a U.S. recession, now estimating it at 60%, up from a previous 40%. Brokerage firms are scrambling to revise their prognosis models, grappling with the uncertainty injected by the tariffs, which threaten to erode business confidence and stifle global economic expansion. The Tel Aviv Stock Exchange (TASE) and other global markets mirrored this downward trend, opening lower on Sunday.

Recession and Inflation Fears Loom Large

The imposition of these tariffs carries a substantial risk of triggering a global recession and fueling inflationary pressures. Federal Reserve Chairman Jerome Powell, in a statement released Friday, characterized the tariffs as “larger than expected,” warning that they would likely lead to slower economic growth and increased inflation.

We face a highly uncertain viewpoint with a high risk of both unemployment and greater inflation.
Jerome Powell, Chairman of the Federal Reserve

These concerns are echoed by economists worldwide, who fear that the tariffs will disrupt supply chains, increase production costs, and ultimately lead to higher prices for consumers. This, in turn, could dampen consumer spending and further slow economic growth.

Impact on Israel’s Economy

The tariffs pose a significant threat to Israel’s economic stability. Even if Prime Minister Benjamin Netanyahu were accomplished in persuading trump to reduce or eliminate tariffs on Israeli goods, the broader impact of the policy on the U.S. economy would inevitably affect Israel.

While over half of Israel’s exports to the U.S. consist of services, which are expected to be exempt from the new tariffs, and other key sectors may also receive exemptions, the indirect consequences of a U.S.economic slowdown could be devastating. A recession in the U.S., one of Israel’s largest trading partners, would undoubtedly have a ripple effect on the Israeli economy.

Furthermore, Israel’s economy is already facing challenges due to ongoing geopolitical tensions and domestic political uncertainty.The country’s involvement in renewed conflicts and controversial judicial reforms have created a precarious economic environment, making it notably vulnerable to the global shockwaves generated by Trump’s new trade policy.

Decoding Trump’s Tariff Strategy

Numerous theories have emerged online attempting to explain Trump’s rationale behind the tariffs. One popular theory, circulating on social media platforms like TikTok and even shared by Trump himself, suggests that the tariffs are designed to “inject money into the treasure bonds,” thereby forcing the Federal reserve to lower interest rates.

Israeli economist Itamar Caspi addressed these types of analyses on social media, noting the tendency to spin the situation positively: everything that is actually happening is good because long -term yields are falling, the Fed will reduce interest rates, and that will help deal with national debt and benefit the stock market.

Caspi likened this approach to how to have a dirty car and instead of taking it to car washing, light it and then celebrate when firefighters come to wash it. This analogy highlights the potential for short-term gains at the expense of long-term economic stability.