The financial markets in 2025 are poised for heightened volatility, with a significant source of uncertainty stemming from Donald Trump’s tariff policies following his return to the White House.
Trump’s previous administration imposed a series of tariffs on multiple countries from March 2018 to the end of 2019, prompting retaliatory measures from affected nations. As a result, the year-on-year growth rate of global trade volume (hereafter “global trade growth”) steadily declined. From a positive 4% at the beginning of 2018, global trade growth slipped into negative territory by year-end. This contraction persisted throughout most of 2019. Furthermore, the onset of the COVID-19 pandemic at the end of 2019 exacerbated the situation, with global trade growth remaining in decline until October 2020.
From these developments, two critical insights emerge:
- Impact on Global Economic Growth
Historical data reveals a robust correlation between global trade growth and the Citi Global Economic Surprise Index (on a 12-month moving average, hereafter the “Global Surprise Index”). Over the past 14 years, the correlation coefficient between these indicators has been as high as 0.7. This underscores how tariff policies, by suppressing global trade, exert considerable downward pressure on global economic growth. Therefore, we cannot ignore the possibility of weak economic growth or even recessions in certain economies in 2025. - Correlation with Financial Market Shocks
Historically, periods of negative global trade growth have often coincided with significant financial market disruptions. Notable examples include the bursting of the dot-com bubble in 2000, the global financial crisis in 2008, and the economic fallout from the COVID-19 pandemic in early 2020. These patterns highlight global trade growth as a reliable predictor of financial market instability. Should tariff-induced trade wars materialize and global trade volumes experience a sharp decline, the risk of a financial crisis would escalate markedly.
In conclusion, these dynamics suggest a likely slowdown in global economic growth by late 2025 or during the second year of the “Presidential Cycle” in 2026, given the lagged impact of tariff policies. Recessionary conditions in some major economies are a distinct possibility. Furthermore, the potential for a financial crisis during this period is significant and warrants vigilant monitoring.
#GlobalTrade, #EconomicOutlook, #FinancialCrisis, #Recession, #TraiffImpact
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