Share prices tumbled around the world on Friday – with Britain’s FTSE 100 suffering its worst drop since the start of the Covid-19 pandemic – as the global trade war intensified with China’s retaliatory imposition of a 34 per cent tariff on imports of all US products.
Trillions of dollars have been wiped from the markets since Donald Trump announced a range of import taxes on goods from other countries. British exports to the US face a blanket 10 per cent levy.
Sir Keir Starmer is due to hold talks with world leaders over the weekend, as nations reel from the economic hit and decide whether to reciprocate with tariffs on Washington. The prime minister was yesterday urged not to retaliate by his predecessor Sir Tony Blair, who said that such a move would not be in the UK’s “best interests”.
Economists warn that escalating the situation could generate a spike in inflation and weaken growth, even triggering recession.
The collapse in share values creates a big dent in many British pension funds, and there are fears that China will respond to the US tariffs by flooding other countries with cheap exports, further harming British firms.
Wall Street saw a second day of bruising losses on Friday, while London’s top stock market fell 4.95 per cent to a five-year low – its biggest single-day decline since March 2020.
Downing Street rejected Mr Trump’s claim that the British government is “happy” about the 10 per cent rate, which is half of the 20 per cent levy being imposed on European Union members, and much lower than the rate imposed on many other nations.
Aboard Air Force One, Trump told reporters he had had a “very good dialogue” with Sir Keir, adding: “I think he was very happy about how we treated them with tariffs.”
But a spokesperson for No 10 was clear, saying “We are disappointed” – and added: “We’ll be engaging with international leaders over the weekend… It is a changing, shifting global economic landscape.”
Analysts for AJ Bell estimate that about £3.8 trillion has been wiped off the value of the global stock market since Mr Trump’s announcement, which he billed as “Liberation Day” for the US economy.
“It caps off a horrible week for financial markets and dragged share prices even lower,” said Dan Coatsworth, an investment analyst at AJ Bell. “It’s also bad for the world in general, as we now have a repeat of the heightened geopolitical tensions between the US and China that dominated Trump’s first term.” Mr Coatsworth added that the president’s “tactics have caused shockwaves in every corner of the world”.
As well as share prices, the value of the US dollar and even gold fell on Friday.
US Federal Reserve chair Jerome Powell described the tariffs, along with their likely economic and inflationary impacts, as “significantly larger than expected” and said they were “highly likely” to lead to “at least a temporary rise in inflation” in the US.
In the stand-off between the US and China, Beijing imposed reciprocal tariffs and announced controls on exports of medium and heavy rare-earths, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium, to the US.
In Japan, prime minister Shigeru Ishiba said Mr Trump’s tariffs had created a “national crisis” as a plunge in banking shares set Tokyo’s stock market on course for its worst week in years.
Investment bank JPMorgan said it now believes there is a 60 per cent chance of the global economy entering recession by the end of the year, up from 40 per cent previously.
EU trade commissioner Maros Sefcovic said he would speak to his US counterparts before responding.
“The EU will respond in a calm, carefully phased, and above all, unified way, as we calibrate our response,” he said on social media. “We will not shoot from the hip.”
The prime minister has said he is reluctant to make a quick decision on tariffs.
In the House of Commons this week, Liberal Democrat leader Sir Ed Davey urged the prime minister to team up with European and Commonwealth countries to “stand against Trump’s tariffs and for free trade”.
Sir Keir replied: “I really do think it is not sensible to say the first response should be to jump into a trade war with the US.”
