Global Stock Markets Crater Amidst US Tariff Escalation
Global stock prices experienced a dramatic decline on Thursday following President Donald Trump's announcement of a new tariff offensive that rattled markets worldwide. The German stock index DAX saw a stark drop of 31 percent, while the Japanese Nikkei index had already fallen by 28 percent. Financial analysts are forecasting severe repercussions from these tariffs on corporate profits, with the pressure extending to the American stock market as well. By the afternoon, the S&P 500 index on Wall Street recorded a decline of over 4 percent, and the technology-heavy Nasdaq composite dropped by more than 5 percent. Notably affected were prominent companies like Apple, whose shares fell by 10.7 percent, and Nvidia with a drop of 8.2 percent. Tesla's stock also suffered, declining by over 5 percent.
The mounting losses underscore a growing anxiety among investors that Trump's trade war could inflict damage on US companies. This sentiment contradicts claims from a White House spokesperson who suggested they were working to restore America’s economic prosperity. Bundesbank President Joachim Nagel highlighted the potential fallout, stating the mixed economic policies could result in numerous losers, particularly within the US.
The trade situation is particularly alarming for the German economy, which is export-focused. Economists, including Achim Wambach, president of the Leibniz Center for European Economic Research (ZEW), predicted a significant downturn: German exports to the US could decline by about 20 percent, leading to a possible 0.5 percent drop in the country’s gross domestic product (GDP). Wambach emphasized that the tariffs could jeopardize global economic stability, with rising prices and increased uncertainty among market participants.
As investors contemplate adjusting their ETF portfolios in response to the deteriorating economic landscape, the Munich Ifo Institute called it a "bitter day for the global economy." Trade expert Lisandra Flach lamented that the tariff differences between the US and the EU—averaging only 0.5 percentage points—are stark compared to the proposed 20 percent tariff increases. Flach warned that this represents a pivotal moment for the global economy, threatening the multilateral trade agreements that have been in place for decades.
The immediate fallout was seen in the DAX, where major companies like Adidas encountered the most significant losses—plummeting by 9.3 percent. Siemens followed with a 6.7 percent drop, and Deutsche Bank saw its shares decrease by 6.5 percent. The automotive sector, including industry giants BMW, Mercedes, and Volkswagen, experienced losses ranging from 2 percent to 3 percent, exacerbated by previous declines due to their direct exposure to the tariffs.
Sportswear brands were particularly affected, with Puma's stock price temporarily falling by 11.4 percent and Nike's shares witnessing a dip of 7.8 percent. Analysts indicated that apparel companies would suffer disproportionately from increased tariffs, with imposed rates of 46 percent on Vietnam, 49 percent on Cambodia, 37 percent on Bangladesh, and 32 percent on Indonesia, the primary production nations for these brands.
Germany's economic struggles will be compounded by three main factors: a reduction in exports to the US, a decrease in competitiveness with China, and heightened competition from China as it seeks alternative markets for its goods. These tariffs ultimately threaten the broader US economy, as evidenced by the fluctuating dollar exchange rates. The euro strengthened by 17 percent on Thursday, reaching 1.1091 dollars, showcasing a substantial drop in the value of the US dollar which has lost approximately 7 percent in recent weeks.
Experts, including Jan Viebig from Bank Oddo BHF, suggested that the new tariff policies might also complicate Trump’s efforts to secure financing for the US budget deficit from foreign investors. Joachim Schallmayer from Deka Bank projected a potential economic upheaval if the tariffs are enforced as outlined.
In conclusion, while European markets might experience short-term pressure, the long-term outlook remains uncertain. Investors will likely continue to grapple with market instability as the effects of these tariffs unfold, exposing the vulnerabilities of global trade and economic interdependence.
Related Sources: