In the past week, global financial markets have experienced a rare and severe shock, with U.S. stocks, Asia-Pacific markets, European stock markets, and even the cryptocurrency market all affected, leading to astonishing declines and widespread impact. The catalyst for all this was U.S. President Donald Trump's announcement on April 2 of a "reciprocal tariff" policy affecting 185 countries worldwide. This policy not only imposes tariffs ranging from 10% to 54% on almost all imported goods but also levies higher rates on specific countries, igniting the powder keg of a global trade war. So why did this tariff policy provoke such a broad and profound market reaction? The reasons lie not only in the suddenness and scale of the policy but also in the complex economic, financial, and geopolitical chain reactions behind it.

Unprecedented Policy Scale and Uncertainty

The scope of this tariff policy is unprecedented. From China to the European Union, from Canada to Mexico, almost no country is exempt. The Trump administration launched this comprehensive tariff plan under the guise of "restoring the dominance of American manufacturing" and "addressing trade imbalances." However, unlike the 2018 trade war that focused on specific countries (like China), the breadth of this policy caught the market off guard. A 10% baseline tariff is sufficient to raise the cost of imported goods, while the 54% super-high tariff on certain countries directly strikes at the core nodes of the global supply chain.

This uncertainty quickly transformed into market panic. Companies cannot swiftly adjust their supply chains, and investors cannot accurately assess future costs and profits. The Nikkei index fell over 5% on the first day after the policy announcement, the S&P 500 index evaporated nearly 8% within two days, and the cryptocurrency market plummeted 15% at one point due to heightened risk aversion. As Bank of Japan Governor Kazuo Ueda warned on April 2, "The new tariffs could pose a significant blow to global growth." This uncertainty arises not only from the policy itself but is amplified by the potential retaliatory measures from various countries.

Dual Blow of Supply Chain Disruption and Inflation Concerns

The core of globalization lies in the deep integration of supply chains, and this tariff policy directly threatens the stability of this system. In the U.S., giants like Apple and Nike, which rely on overseas manufacturing, are the first to bear the brunt. Tariffs raise the cost of imported components, forcing companies to either compress profits or pass costs onto consumers. The latter will inevitably stimulate inflationary pressures—especially deadly against the backdrop of an already sluggish U.S. economy.

Since 2024, the Federal Reserve has attempted to stimulate the economy through interest rate cuts, but the potential rise in inflation further limits monetary policy space. The market fears that if tariffs trigger a new round of price increases, the Fed may be forced to tighten policies, leading to soaring U.S. Treasury yields. In fact, after April 3, the 10-year U.S. Treasury yield has already surpassed 4.5%, the highest level in nearly two years. This not only raises corporate financing costs but also triggers concerns about the collapse of valuation logic in U.S. stocks. Several Wall Street banks have issued large-scale margin calls to hedge funds, highlighting the rapid deterioration of market liquidity.

Strong Dollar and Imbalance in Global Capital Flows

One direct consequence of the tariff policy is the strong return of the dollar. As the tax increase may temporarily improve the U.S. trade balance, demand for the dollar surged, with the dollar index rising nearly 3% from April 2 to April 5, marking the largest weekly increase since 2023. However, this strength is not a blessing. George Saravelos, Global Head of FX Research at Deutsche Bank, previously warned, "The broader the scope of tariffs, the greater the negative impact on the U.S. itself." The appreciation of the dollar not only weakens U.S. export competitiveness but also exacerbates capital outflow pressures in emerging markets.

For emerging economies that rely on dollar financing, this is akin to adding insult to injury. Stock markets and currencies in countries like India and Brazil have fallen in tandem over the past week. The imbalance in global capital flows further amplifies market volatility, with the sell-off of risk assets spreading from U.S. stocks to Asia-Pacific and then to Europe, creating a vicious cycle.

Geopolitical Games and the Collapse of Market Confidence

This tariff policy is not only an economic action but also a continuation of geopolitical games. Trump views tariffs as "the most beautiful word," attempting to reshape the global economic order through trade barriers. However, this strategy has angered both allies and adversaries. The European Union has stated it will implement reciprocal measures against U.S. goods, while Canada and Mexico have also threatened retaliatory actions. The global trading system faces fragmentation risks, and this uncertainty directly destroys the confidence of businesses and investors.

The deterioration of market sentiment is evident in discussions on platform X. Some users pointed out, "If the trade war escalates alongside uncontrolled inflation, it could trigger a systemic financial storm." This concern is not unfounded. 2025 is already a critical juncture for global economic cycle adjustments, and the combination of geopolitical tensions and Trump's policy risks casts a heavy shadow over recovery prospects.

Long-Term Impact Yet to Be Observed

Although market turbulence is unlikely to settle in the short term, the long-term impact remains uncertain. Supporters argue that tariffs may drive manufacturing back to the U.S., enhancing economic resilience. However, opponents point out that high costs and retaliatory measures may lead to a decline in consumer spending, potentially triggering a recession. The International Monetary Fund (IMF) has planned an emergency meeting next week to assess the impact of tariffs on the global economy.

For investors, this is a time of both risk aversion and cautious observation. Traditional safe-haven assets like gold and the yen are in high demand, while adjustments in risk assets may continue for months. As the Wall Street Journal commented, "Trump's tariff stick continues to swing, but the uncertainty of the global trading order is already out of control."

Conclusion

The reason this tariff policy has triggered such a broad and severe market reaction lies in its unexpected scale, the fatal blow to supply chains, the chain effects of dollar liquidity, and the complex geopolitical games. The global financial market stands at a crossroads; short-term volatility may just be the beginning, and the future direction will depend on the outcomes of policy games among various countries. For businesses and investors, the challenge of adapting to this new reality has only just begun.

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