Global Risk Indexes (03-02-2025)

Global 98 (0 —)
MENA 96 ( —)
APAC 98 (+1 ▲)
Europe 99 ( —)
Africa 97 (-1 ▼)
AMERs 98 ( —)
Markets 98 (-1 ▼)
Graham Westcott, Global Markets region analyst at Worldwise Analytica

Graham Westcott

Navigating Global Intersections: Where Trade, Finance, Energy and Geopolitics Converge

Global Trade War Erupts: Markets Plunge Amid U.S. Tariff Shockwaves

The trade war between the U.S. and its top trading partners has reached a critical inflection point. President Trump's decision to impose 25% tariffs on imports from Canada and Mexico, alongside 10% duties on Chinese goods, has triggered an immediate backlash. Canada has retaliated with tariffs on $155 billion worth of U.S. goods, targeting critical sectors such as energy, agriculture, and automotive. Mexico is preparing countermeasures, while China is weighing its response through the WTO and alternative economic pressure points.

Financial markets have reacted with sharp volatility. The Mexican peso and Canadian dollar have plunged to multi-year lows, while the offshore Chinese yuan hit a record low. The euro also dropped amid concerns that the EU could be the next target of U.S. trade restrictions. Meanwhile, safe-haven assets like gold have surged to near-record highs as investors seek refuge from the escalating economic conflict.

The tariff escalation is fueling inflationary risks and supply chain disruptions. The automotive industry is bracing for a severe cost shock, with manufacturers in Canada and Mexico warning of production slowdowns and job losses. U.S. consumers can expect higher prices on everyday goods, from groceries to automobiles, as businesses pass the cost of tariffs onto consumers. The energy sector is also at risk, with Canadian crude facing a $3'$4 per barrel discount due to trade restrictions.

China's AI dominance adds a new layer of competition to the U.S.-China rivalry. The rise of DeepSeek AI, offering significantly cheaper alternatives to OpenAI, is reshaping the AI landscape. As Western firms scramble to maintain their competitive edge, the U.S. is accelerating investments in AI and semiconductor production. However, the rapid adoption of Chinese AI technology in Europe and emerging markets underscores Beijing's growing influence in the digital economy.

The Federal Reserve faces a dilemma as economic conditions deteriorate. The trade war has intensified stagflationary pressures, limiting the Fed's ability to cut interest rates. With inflation risks rising due to higher import costs, analysts predict that rate cuts could be postponed indefinitely. Meanwhile, the European Central Bank is under pressure to ease monetary policy further as the eurozone grapples with economic stagnation.

Investors must prepare for prolonged trade instability. The global economy is entering a new era of protectionism, with businesses needing to diversify supply chains, mitigate currency risks, and hedge against inflation. The next phase of the trade war could involve additional U.S. tariffs on Europe, further fracturing global trade networks.

Conclusion: The global economic order is shifting rapidly, with deepening trade conflicts accelerating regional economic fragmentation. In the short term, expect heightened market volatility and inflationary pressures. In the long term, businesses and policymakers will need to rethink globalization strategies, favoring regional trade resilience and technological self-sufficiency.

Geopolitical Risk Assessment for the Global Markets
(03-02-2025)

Global markets are facing unprecedented instability due to the escalating U.S. trade war with Canada, Mexico, and China. The immediate economic fallout includes supply chain disruptions, inflationary pressures, and potential recessions in key economies. Meanwhile, the technological rivalry between the U.S. and China over AI dominance is intensifying, further exacerbating geopolitical tensions. Investors should brace for heightened volatility in currencies, commodities, and equities as retaliatory measures take effect. The long-term trend points toward systemic trade realignment, the fragmentation of global markets, and the emergence of regionalized economic blocs.

Geopolitical Risk Index

Developments to Follow for the Global Markets (See All Global)

Previous Briefings

See all previous briefings