The global trade landscape is shifting once again as Trump’s 10% tariffs on Chinese goods officially take effect, prompting swift retaliation from Beijing. As tensions escalate, the risks of a US-EU trade war are also mounting, further shaking global markets. Meanwhile, investors are flocking to safe-haven assets, bolstering the dollar’s strength in the first half of the year.

China Hits Back at the US

China has responded to Trump’s tariffs by levying new taxes on certain US imports and launching a probe into Google, signaling its intent to counter US economic pressure. With both sides digging in, fears of a prolonged trade conflict are growing, which could disrupt supply chains and weigh heavily on global growth.

US-EU Trade War Looms

Beyond China, trade tensions between the US and the EU are also raising alarms. A full-scale trade war between these two economic giants would threaten the world’s richest economic relationship, potentially impacting major industries on both sides of the Atlantic.

Safe-Haven Demand Lifts the Dollar

In times of economic uncertainty, investors often turn to the US dollar as a safe-haven asset. With rising geopolitical risks and trade uncertainty, the dollar is expected to maintain its strength in the first half of the year. This trend is already influencing Canadian traders, who are shifting toward safer bets amid rising tariff threats.

Impact on Global Markets

The fallout from escalating trade tensions is spreading across various industries:

• Asian Tech Stocks at Risk: Morgan Stanley warns that ongoing trade risks could cause a 20% decline in Asian tech stocks, underscoring the sector’s vulnerability to US-China tensions.
• Chip Industry Slump Continues: NXP Semiconductors has issued a disappointing sales forecast, citing ongoing struggles in the semiconductor market.
• Banking and Crypto Uncertainty: Financial institutions may start limiting their exposure to crypto, as anti-money laundering regulations remain unclear.
• Salesforce Layoffs Despite AI Push: While Salesforce is cutting 1,000 jobs, it is simultaneously hiring salespeople to capitalize on the AI boom.
• Palantir Sees AI-Driven Growth: In contrast, Palantir is projecting strong growth into 2025, fueled by what it calls “untamed” AI demand.

Central Banks and Policy Responses

• BoJ Targets Inflation: The Bank of Japan (BoJ) aims to achieve a 2% inflation rate, as measured by overall CPI.
• US Fed’s Rate Cutting Plans in Question: The Chicago Fed’s Goolsbee warns that Trump’s trade policies could slow the Fed’s ability to cut rates, adding another layer of uncertainty to financial markets.
• JGBs Under Pressure: Japanese government bonds (JGBs) have fallen following the US decision to pause tariffs on Canada and Mexico, signaling shifting investor sentiment.

With trade tensions on multiple fronts, investors and businesses alike are bracing for continued volatility. While some sectors, like AI, continue to thrive, others—especially those tied to global supply chains—are facing increasing pressure. As the world watches the next moves from Washington, Beijing, and Brussels, the economic stakes have never been higher.