Stock & Shares

Will Trump Trade War Fears Spark Another Stock Market Sell-Off?


After stock markets in the UK and US were hit by a correction of around 10% between the end of January and early February, the two weeks in the middle of February saw a recovery looking to take shape. Equities indices have again taken a nose dive after a March 1st announcement by President Trump on weighty tariffs to be applied to steel and aluminium imports into the USA.

Between Thursday and Friday, stock markets around the world have seen falls, raising the spectre of a more serious and prolonged sell-off if further protectionist moves are made in the coming weeks and months. Brits investing online in ISAs and SIPPs will be concerned how serious things might get.

When Trump entered the White House, addressing ‘unfair’ discrepancies in international trade relations had been central to his campaign. He promised to ‘put America first’ and protect locally produced products from cheap imports. However, over the past year, despite occasional mutterings from Trump, trade protectionism had gone largely quiet since.

Many observers, while still wary as Trump has shown a pattern of coming back to his campaign promises one by one and acting on them, or at least trying to, had come to conclusion the President may have listened to advice and taken a step back on this particular theme. However, yesterday’s announcement that global tariffs of 25% on steel and 10% on aluminium raises the possibility that this may be just the beginning of a raft of protectionist measures to be introduced.

The EU sent out a strongly worded warning criticising the move and in Germany the Xetra Dax was down 2.1%, the STOXX 600 1.7% and Stoxx Industrial Metals Index 2.6%. International steel and aluminium stocks were also predictably down around the world. The S&P 500 dropped 1% on the opening bell this afternoon.

If this is a relatively isolated move, markets should take it in their stride and the longer term impact should be largely limited to companies in steel and aluminium production and trade. However, if it is the first of a series of new tariffs to be announced, investors can expect a more serious reaction from global markets. There is a significant likelihood that an aggressive protectionist policy being rolled out by the Trump administration would lead to an international trade war that few if anyone would benefit from, including the USA.

Market participants will be particularly concerned about the prospect of a major trade dispute between the USA and China, who Trump has particularly targeted in comments on the matter.

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The author Paul