Trump’s trade policy, market impact, and trading trends

How is Trump’s trade policy shaking up markets and redefining the global economy in 2025? Trading expert Terence Hove breaks down the key impacts, from tariff shocks to investor reactions and long-term economic risks.

In April 2025, the global economy was jolted by a sweeping protectionist pivot from the United States, signaling a major turning point for the global economy in 2025. President Trump’s administration enacted a universal 10% tariff on nearly all imports, with punitive rates of up to 25% or more on 57 countries, including strategic partners such as China, Canada, and Mexico. The result has been an immediate surge in global trade tensions, financial market turmoil, and growing fears of a prolonged economic slowdown.

Key takeaways

1. Trump’s trade policy sparked a global tariff war. Sweeping tariffs in 2025 disrupted trade and triggered economic uncertainty.
2. Global retaliation deepened trade fragmentation. Major partners hit back with tariffs, slowing post-pandemic recovery.
3. Markets plunged amid rising volatility. Stocks tumbled, safe-haven assets surged, and trade-heavy sectors suffered.
4. The global economy faces contraction. US GDP may fall 6%, with wage declines and supply chain disruptions.
5. Capital flows are under pressure. Reduced foreign investment is raising borrowing costs and fiscal risk.

China’s retaliation and the global trade fallout

The tariff regime, effective 5 April 2025, marks one of the most dramatic shifts in US trade policy in modern history. China responded forcefully, slapping retaliatory tariffs of up to 125% on American goods. By mid-April, US tariffs on Chinese imports had soared to 145%, effectively freezing bilateral trade flows. The scope of tariffs is unprecedented, covering core global sectors such as automobiles, steel and aluminum, semiconductors, and pharmaceuticals. Only a narrow band of goods, mostly select consumer electronics from non-targeted countries, remain exempt.

The scope of tariffs is unprecedented, affecting key pillars of international commerce. Sectors impacted by this shift include:

• Automobiles—disrupted global manufacturing supply chains.
• Steel and aluminum—higher production costs and reduced export competitiveness.
• Semiconductors—strained electronics and tech hardware industries.
• Pharmaceuticals—increased prices and sourcing delays.
• Consumer electronics—only select items from non-targeted countries remain exempt.

This aggressive escalation between the US and China poses a serious risk to the global economy in 2025.

Global retaliation and economic fragmentation

In response, major trading partners, including the EU, China, Canada, and Mexico, have implemented their own tariffs targeting US goods, exacerbating global economic fragmentation. This has led to a notable decline in global trade volumes, threatening fragile post-pandemic recoveries.

Market reactions to Trump’s trade policy

Markets reacted sharply. The announcement triggered a steep selloff in early April, erasing trillions in global equity value. US indices saw their worst single-week decline since March 2020, as investors grappled with higher input costs, supply chain fragmentation, and slowing global trade. 

Sectors most exposed to international trade, such as automobiles, tech, and manufacturing, were among the hardest hit. Volatility indices spiked, and capital fled to safe havens such as US Treasuries and gold.

Long-term economic impact of the tariffs

The long-term effects of Trump’s trade policy are weighing heavily on the global economy in 2025, with major structural consequences:

• US GDP is projected to shrink by 6%, reflecting reduced trade activity and higher costs.
• Wages may fall by up to 5%, particularly in industries dependent on international supply chains.
• Tariff revenue may top 156 billion USD in 2025, but at the expense of business margins and consumer prices.
• This is the largest US tax increase since 1993, adding a deflationary drag to an already fragile recovery.
• Global investment confidence is eroding, with capital shifting away from US-exposed assets

These long-term trends suggest deeper vulnerabilities in the global economy in 2025, especially if trade tensions continue.

Uncertainty and rising costs for businesses

The erratic and sweeping nature of Trump’s tariff policy has increased business uncertainty. Firms are struggling to forecast costs, plan capital expenditures, and maintain global operations. All of these moves require significant capital, time, and regulatory navigation.  This uncertainty is a major headwind for the global economy in 2025, particularly for the manufacturing and tech sectors. 

Businesses face mounting operational challenges due to Trump’s trade policy, including:

• Cost unpredictability—difficulty budgeting for raw materials and components.
• Capital expenditure delays—hesitation to invest amid tariff instability.
• Supply chain reconfigurations—costly and complex logistics shifts.
• Regulatory hurdles—navigating shifting trade rules across borders.

These issues compound the strain on the global economy in 2025, especially in trade-reliant industries.

Fiscal pressures and capital flow risks

The drop in foreign capital inflows may force US households and institutions to finance more of the growing federal deficit. This shift could push bond yields higher, increasing the cost of capital for business investment, housing, and infrastructure investment. It also places upward pressure on interest rates, complicating monetary policy responses —especially as commodity markets like oil remain highly sensitive to these macroeconomic shifts.

Final thoughts 

The Trump administration’s aggressive tariff regime has fundamentally altered the global trade order. While tariffs may boost federal revenues, they do so at a steep cost: slower growth, weaker household incomes, supply chain instability, and heightened market volatility. The true test of resilience for the global economy in 2025 will be navigating the volatility created by Trump’s trade policy and a rapidly shifting global trade environment.