US tariffs shake global markets, slow recovery expected

On Tuesday morning GMT, stock indices across the ocean recorded significant declines. The S&P 500 index lost 1.69%, reaching 5,938 points. The Dow Jones dropped by 1.4% to 43,920 points, and the technology-heavy Nasdaq declined by 2.16% to 19,204 points. The yield on 10-year US Treasury bonds decreased to 4.498%.

The reason is the decisions made by the US president. Donald Trump has instituted 25% tariffs on most goods from Canada and Mexico, with the exception of Canadian oil, which is subject to a 10% tariff. Goods from China are subject to 10% tariffs. The US president argues that "the decision is aimed at protecting Americans from the threat of illegal immigrants and deadly drugs, including fentanyl."

On Tuesday afternoon GMT, an announcement was made about the suspension of tariffs on Mexican goods. This information clearly improved investors' moods, but the indices are just beginning to recover their losses. Almost the entire trading day remains for markets in the USA.

According to economists from Oxford Economics, the new tariffs could significantly impact global economic growth in 2025. Ryan Sweet predicts that some sectors will receive exemptions, including building materials and transport equipment. Despite this, it is estimated that the tariffs will reduce US economic growth by 0.7 percentage points.

Michael Feroli from JP Morgan notes that the impact of tariffs on inflation will depend on their duration, the effectiveness of their collection, and the response of global financial markets.

Paul Ashworth from Capital Economics believes that "inflation in the US will rise faster and higher than initially expected." Economists predict that in this situation, the Federal Reserve will hold off on cutting interest rates for the next 12-18 months.

The automotive sector is feeling the particularly strong effects of the new tariffs. Shares of General Motors fell by 4.89%, and Ford's by 3.03%. Significant losses were also recorded by auto parts manufacturers - Aptiv lost 7.61%, and Cummins 2.71%.

Cryptocurrencies are also affected by market uncertainty. Bitcoin fell below the psychological threshold of £80,000, losing 1.61% and reaching £76,600.

The German economy is also reacting to President Donald Trump's decisions to impose tariffs on products from Canada, Mexico, and China. Concerns are raised by the US president's suggested possibility of extending tariffs to goods from the European Union. The most affected were shares of European car manufacturers and industrial companies.

Volkswagen recorded a 5.54% drop, one of the steepest declines in the DAX index. Concerns over the introduction of tariffs on cars exported to the US also affected other automakers - Mercedes-Benz shares lost 3.85%, and BMW fell by 3.36%. Among industrial companies, Siemens recorded the largest losses, with its shares falling by 3%.

Significant declines were also noted on the Paris stock exchange. Stellantis recorded a 5.97% drop, which was the largest single-day decline among companies listed in the CAC 40 index. Luxury goods manufacturers also felt the uncertainty - shares of Kering lost 4.04%. Significant losses were also noted for industrial companies, like Saint Gobain with a 3.71% drop, and Legrand, whose shares fell by 3.4%. Steel producer ArcelorMittal ended the session with a 3.23% drop.

The introduction of new US tariffs on goods from Mexico and Canada includes 25% fees on imported cars and car parts, with imports from Mexico valued at about £120 billion annually. Additionally, tariffs also covered alcohol, including tequila, with imports to the US reaching £4 billion. New tariffs also apply to products from China, which are subjected to an additional 10% fee. The value of imported electronics from China exceeds £100 billion, and tariffs also cover toys and sports equipment.