How Trump’s 2025 Tariffs Sparked a Global Trade War and Shook Financial Markets

In January of this year President Trump unilaterally initiated what must be called a trade war, announcing sweeping tariffs. These included a baseline 10% on all trading partners, and higher ‘reciprocal’ rates on disfavored nations.  The net effect has negatively impacted global economic growth projections, with the World Bank revising growth rate downward to a 2.3% for 2025, the weakest non-recession rate since 2008. Every financial market has been impacted to some degree.

Bond Market Turmoil: Treasury Yields Surge Amid Inflation Fears and Tariff Shock

The bond market experienced heightened volatility. Initially, yields fell as investors sought safe havens amid stock market declines. However, concerns over persistent inflation and poor US fiscal policy led to a sharp rise in yields; the 10-year Treasury yield surged from 3.86% to 4.5% within days, and the 30-year yield increased by 54 basis points to 4.92%, - the largest three-day jump since 1982.

Stock Markets React to Trade Tensions: U.S. Slides, Europe and Asia Show Resilience

Equities markets have experienced varied effects. U.S. equity markets suffered significant losses following the announcement of widespread tariffs. The S&P 500 and Nasdaq entered correction territory, with the S&P 500 dropping over 10% in early April. However, a subsequent pause in tariff implementations and strong corporate earnings, particularly in the technology sector, facilitated a market rebound.

European and Asian equities faced initial downturns due to trade uncertainties but have shown resilience, with some markets outperforming U.S. indices. For instance, the UK's FTSE 100 approached record highs despite a significant drop in exports to the U.S.

U.S. Dollar Drops 9% in 2025: Tariff Fallout and Fed Uncertainty Drive Currency Weakness

 The effects on currencies have been mixed, as we will see. The U.S. dollar has depreciated by approximately 9% in 2025, reaching a three-year low. This decline is attributed to investor concerns over escalating fiscal deficits, rising inflation, and political uncertainties surrounding the Federal Reserve's independence. But the effects are not evenly distributed across all currency pairs.

Let’s examine three different currency pairs with a timeline of announcements and effects on the spot rate.

Euro Strengthens as U.S. Tariffs Prompt EU Retaliation and Dollar Slide

EURUSD (plotted as USDEUR so as to highlight USD depreciation).  The effects of back-and-forth tariff announcements and countermeasures is quite evident. Please refer to the five annotations. The first announcement pf a 25% tariff produced a roughly 2% reduction in the value of the USD. The largest drop occurred when the EU proposed an additional 25% tariff on US goods. That resulted in a huge drop of 5% over the three weeks subsequent. Things finally stabilized during the month of May. However, negotiations are progressing slowly, with the EU resisting U.S. demands on agricultural access, pharmaceutical pricing, and auto market protections. The EU has only presented a viable offer after President Trump threatened a 50% tariff, prompting renewed negotiations.

YTD EUR/USD Overview

Yen Surges as Japan’s Economy Feels Tariff Heat and Nikkei Plummets

USDJPY – After the first announcement, the USD weakened against the Yen by about 7%. There was an ancillary effect on this currency pair when reciprocal tariffs were placed on China (from 84% to 125%). These tariffs led to a 7.8% drop in Japan's Nikkei 225 stock index, marking the third-largest single-day loss in its history. Analysts estimate that the tariffs could decrease Japan's GDP by 0.8%. That precipitated another large drop in USD to nearly 140. After a small recovery, the USD was again pummeled when the steel and aluminum tariffs were announced. All in all, we’ve seen a total drop of just under 8% in five months – a huge amount for this normally stable currency pair.

Japan is in earnest negotiations, including a scaled reduction mechanism for auto tariffs, based on factors such as Japanese automakers' U.S. production levels and exports from the U.S. to other markets. Additionally, Japan's largest utility, JERA, has secured new agreements to purchase up to 5.5 million metric tons per annum of liquefied natural gas (LNG) from U.S. projects over 20-year contracts, beginning around 2030. This move is part of JERA’s strategy to diversify its LNG supply and is seen as a gesture to strengthen trade relations with the U.S. President Trump has indicated a willingness to extend the July 8 deadline for finalizing trade negotiations.

YTD USD/JPY Overview

Pound Rises as U.S. Grants UK Tariff Relief, But Growth Concerns Remain

The final pair we will examine is GBPUSD (again presented as USDGBP to highlight effects on the USD). The USD fell against Sterling quite precipitously at the first announcement in late January, falling from .82 to .77, a 5% drop. There were several additional tariffs announce regarding autos and steel/aluminum, prompting a further fall for the dollar. All in all the dollar has lost 7% of its value against the Pound in 5 months, only stabilizing when the US granted the UK an exemption in early June. The UK has not gone unscathed-GDP contracted by 0.3% in April, with the services sector down 0.4% and production declining 0.6%.

The results of further negotiations have resulted in reduced tariffs on British car imports from 27.5% to 10% for the first 100,000 vehicles annually. Imports exceeding this quota will be subject to a 25% tariff. The U.S. has eliminated the 25% tariffs on UK-origin steel and aluminum that were imposed earlier in 2025. However, steel producers such as Tata Steel face challenges due to U.S. rules requiring steel to be "melted and poured" in the export country. Since Tata processes steel imported from other countries, it may not qualify for tariff exemptions.

There still remain serious issues. The UK's 2% DST on large multinational tech firms is one. Another is President Trump threat to impose a 100% tariff on foreign-made films, which could significantly impact the UK's film industry.

YTD USD/GBP Overview

Have Tariffs Worked? A Costly Gamble with Modest Gains and Widespread Fallout

It’s been a wild ride for the last five months. What have these tariffs accomplished? On the plus side:

• Certain domestic sectors (agriculture and steel and aluminum producers) have received some competitive relief.

•  Trump has been able to extract concessions, such as China agreeing to export rare earth minerals, the UK lowering trade barriers for U.S. ethanol and beef, and India working toward reducing non-tariff barriers.

On the negative side:

• Tariffs act as a tax on U.S. businesses and consumers. Importers bear the brunt of increased costs, leading to higher prices for consumer goods, especially autos, electronics, and machinery. There have been disruptions in supply chains and increased costs for manufacturers relying on intermediate goods.

• The announcement and implementation of tariffs triggered a significant market sell-off. The S&P 500 and Nasdaq entered correction territory in early 2025. Bond markets saw massive yield spikes due to fears of rising inflation and fiscal instability.

• Long time allies like Canada, Mexico, the UK, and the EU retaliated or delayed negotiations in frustration.

My conclusion is that they have generally been a failure- they have not fundamentally improved the U.S. trade position and have come at a high cost—including higher consumer prices, global market disruptions, and continued economic uncertainty.