As Donald Trump’s tariffs on countries across the world continue to send shockwaves in the global economy, many experts fear the worst is yet to come. Overnight, the US president sparked a trade war overnight with partners in all continents with many retaliating in turn.
The US president has said the tariffs are necessary to counter trade imbalances with nations that have been ‘pillaging’ the US, although some economists have called his administration’s sums into question.
Defending the measures, US secretary of state Marco Rubio said: “Businesses around the world, including in trade and global trade, they just need to know what the rules are.”
China has now imposed a 35 per cent tariff on imports from the US, matching the Trump administration’s figure on the nation. The European Union has also pledged to enact countermeasures, while ministers in the UK have hinted at retaliation if a trade deal with the US is not agreed.
Responding to the tariffs, EU president Ursula von der Leyen said: “Let's be clear-eyed about the immense consequences. The global economy will massively suffer. Uncertainty will spiral and trigger the rise of further protectionism. The consequences will be dire for millions of people around the globe.”
The dramatic international spat has caused growth to halt across the globe, with US companies suffering the most. One of the countries most prominent indexes – the Dow Jones – fell more than 1,200 points, or 3 per cent on Friday. This took it to its lowest point since May 2024, which it previously had been rising steadily from.
Meanwhile, Britain’s FTSE 100 index suffered its worst one day drop since the start of the Covid pandemic. These sudden slumps have seen investors around the globe lose considerable amounts, with little hopes of a quick recovery.
Will there be a market crash?
Investors are now concerned that markets could fall even lower in the midst of an international trade war, leading to risk of a market crash. Analysts at major investment bank JPMorgan have also raised the risk of a global recession to 60 per cent, telling clients: “There will be blood.”
"[The tariffs], if sustained, would likely push the US and possibly global economy into recession this year. An update of our probability scenario tree makes this point, raising the risk of a recession this year to 60 per cent," they say.
When was the last market crash?
A guide to some of the major market crashes in history
9 March 2020 – global stock markets suddenly crashed amid fears of a global recession which were triggered by the Covid-19 pandemic and an oil price way between Saudi Arabia and Russia. The Dow Jones and FTSE both plunged at the fastest rates in decades, although recovery was faster than in 2008.
10 October 2008 – In September 2008, the collapse of Lehman Brothers triggered massive market drops across the world. Britain’s FTSE 100 fell 8.8 per cent in a single session in its worst day since the 1987 crash. By 2009, the Dow Jones had also lost 54 per cent of its value in two years, a record-breaking decline.
17 September 2001 – In the aftermath of 9/11, Wall Street remained closed until September 2001, which was the longest shutdown since 1933. On reopening, the Dow Jones fell 7.1 per cent, lead by airlines and insurers.
19 October 1987 – In what was Wall Street’s most damaging day, the Dow Jones fell 22.6 per cent. This was caused by by fears about the US economy and new automatic trading programmes.
28 October 1929 – Called ‘Black Monday,’ a name which has been given to several damaging days since. This was when the Dow Jones fell a then-record 13 per cent, with the Great Wall Street Crash ending the bull market of the 1920s and plunging the US into the Great Depression.
But the current drop is not a stock market crash, and many analysts say it is too early to tell whether that is the direction the current slump is heading.
A stock market crash is generally considered to be when stock prices across the globe see a major and sudden drop which can seriously devalue currencies. It is usually taken to mean a fall of 10 per cent or more in a stock market index over several days.
While some stock markets have seen drops of 3 to 4 per cent, this is not considered a stock market crash. However, if the fallout continues throughout the week it may reach similar levels to previous crashes.
Dan Coatsworth, investment analyst at AJ Bell said: “It's important to focus on the long term and not lose confidence when there is a bad period on the markets.
“This week’s market sell-off has been unpleasant but it’s not out of the ordinary. History shows that markets often experience sharp pullbacks and then bounce back. While we don’t know when a recovery will happen, staying invested throughout has often proved to be the best strategy. It’s time in the market that matters, not timing the market.
“Many people have increased exposure to US markets in recent years after a strong run for shares in that part of the world. The S&P 500 index of US shares is down 12 per cent since February which feels dramatic, but that only puts it back to where it was last August.”
Should people be worried about their money?
For anyone with regular savings and bank accounts that are not in stocks and shares, there is little cause for concern at the moment. However, upsets in the stock market will always have knock-on effects on pension funds which are generally invested in shares.
There has also already been a hit to those who invest in stocks professionally or to maximise their savings, which US shares in particular seeing a steep drop.
AJ Bell’s Mr Coatsworth says: “The sharper pullback in the US compared to other parts of the world year-to-date is a good reminder to have a diversified portfolio. It’s important not to be overly reliant on one area to make money and spreading risks around rather than chasing previous winners. China and Europe were deeply unloved for years and they’ve been stock market superstars this year, much to many people’s surprise.
“Liberation Day has upset the markets and that will impact millions of people in the UK as pensions are typically invested in stocks and shares, as are investment ISAs. It might feel like there is so much bad news and that stashing cash under the mattress is the way forward. But that could be a mistake longer-term.
“The turmoil caused by tariffs and fears of a global trade war is not a reason to stop investing. If anything, it could be argued there is now an opportunity to buy shares in companies or funds at much cheaper prices. However, there is still a lot of uncertainty around the true impact of tariffs, so investors still need to do thorough research before making new investments.”
