Trump has successfully blown up the global trading system

While Wall Street settled a little on Monday, there’s still a question mark over the future of US financial markets raised by the rollercoaster mayhem in share, bond and currency markets this month. The cause is obvious. Donald Trump’s April 2 “Liberation Day” ignited a massive burst of volatility, with his subsequent pauses and exemptions generating wild movements in all the markets.

The sharemarket initially plunged before the 90-day pause in “Trump’s reciprocal” tariffs saw a steep, albeit partial, bounceback. Bond yields spiked at a rate not seen since the earliest days of the pandemic in 2020 before subsiding slightly on Monday in response to the decision to exempt, for the moment, electronics from the tariffs. Donald Trump’s tariff policies have set off a massive burst of volatility.



Credit: Bloomberg The US dollar has been sliding against the trade-weighted basket of its (former?) major trading partners’ currencies since April 2. Indeed, after a “Trump bump” in the period between last year’s US election and Trump’s inauguration, it has been sliding all year, but the decline accelerated after the package of universal and “reciprocal” tariffs was unveiled. Loading It is highly unusual – it has only been seen during financial crises in the past – for US share prices, bond yields and the dollar to fall simultaneously.

Normally, there is an inverse relationship between share prices and yields, and the dollar and yields usually strengthen in times of stress. That’s where their “safe haven” status has been demonstrated in the past. It would seem, as the post-mortems on what occurred over the past fortnight roll in, that the US flirted with a financial crisis during the most intense period of selling in the immediate wake of the tariffs announcements but didn’t get close to the levels of stress seen in March 2020, when the US Federal Reserve Board threw a kitchen sink of measures at the markets to avoid a complete meltdown of the system.

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