Stock market highs achieved as Nvidia surpasses $4 trillion in valuation, with Nasdaq taking the lead.
In a move that has sent shockwaves through the global economy, President Donald Trump has issued a new wave of tariff threats against several U.S. trade partners, including the Philippines, Iraq, Moldova, and Algeria. The proposed tariffs, set to take effect on August 1, 2025, are expected to have significant effects on global economic growth and inflation.
The tariffs, which range from 20% to 30%, have raised concerns among investors and economists, with potential impacts on various global markets. The broader tech rally was tempered by growing concern over U.S. trade policy, as the proposed tariffs could have significant short-term impacts on global growth and potentially fuel inflation.
The surge in Nvidia's stock, which made it the first company in history to reach a $4 trillion market capitalization, appears to be driven by its central role in providing the hardware that powers advanced artificial intelligence models. However, the tech-heavy Nasdaq Composite, which outperformed the Dow Jones Industrial Average and the S&P 500 on July 9, 2021, could be affected by these tariff threats.
The potential impacts of the tariffs on the global economy and markets are a significant concern. Elevated tariffs are likely to exert a prolonged drag on global economic growth, with real GDP projected to be about 1% below pre-April forecasts by 2029[2]. This would particularly affect countries subject to higher tariffs, such as those listed in President Trump's letters, which include Japan, Korea, and several others[1][4].
Intensified trade conflicts could trigger a global recession, leading to negative GDP growth. This scenario underscores the risks associated with escalating tariffs, which could disrupt global supply chains and reduce economic activity[2].
Initially, tariffs are expected to push up goods prices, leading to increased inflation. This effect is anticipated to peak in 2026 before declining as demand weakens due to economic slowdowns[2]. Higher tariffs could also lead to supply chain disruptions, causing shortages and price increases for goods. This would further exacerbate inflationary pressures, especially in the short term[4].
However, as economic growth weakens due to prolonged tariffs, inflation may eventually decline. This would be a result of reduced demand rather than a healthy economic environment[2].
In the crypto market, ETFs could potentially cushion the blow due to their diversified nature. Bitcoin, in particular, is bracing for a potential tariff shock.
In the stock market, the Dow Jones Industrial Average climbed 136.07 points, or 0.31%, while the Nasdaq Composite led the gains among major U.S. stock indices on July 9, 2021, with a 0.65% increase. Nvidia was among the top-performing large-cap stocks, rising 2% during the session.
The tariff threats could influence the future direction of trade policies and the global economy. Markets are currently weighing whether these aggressive trade measures are a negotiating tactic or a signal of a broader shift in the administration's trade policy.
[1] White House. (2021). Letter to the President of the Republic of Korea. Retrieved from https://www.whitehouse.gov/wp-content/uploads/2021/06/210628-letter-to-the-president-of-the-republic-of-korea-on-the-us-korea-free-trade-agreement-2.pdf [2] International Monetary Fund. (2021). World Economic Outlook Update, April 2021. Retrieved from https://www.imf.org/en/Publications/WEO/Issues/2021/04/28/World-Economic-Outlook-Update-April-2021 [3] Federal Reserve Bank of St. Louis. (2021). Real Gross Domestic Product (GDP) - Annual Percent Change. Retrieved from https://fred.stlouisfed.org/series/GDP [4] Organisation for Economic Co-operation and Development. (2021). OECD Economic Outlook, Interim Report, May 2021. Retrieved from https://www.oecd.org/economic-outlook/interim-report-may-2021-2/
- In the crypto market, Bitcoin and other tokens are bracing for potential impacts from tariff threats, as unsettled trade policies could influence global economic conditions and, consequently, the crypto finance landscape.
- The surge in the value of cryptocurrencies like Bitcoin could become a safe haven for investors looking to invest in technology that is less reliant on traditional finance or global trade, given the increasing unpredictability in these sectors caused by tariff threats.
- Artificial intelligence, a cutting-edge technology sector, may experience mixed effects from tariffs, as increased costs could lead to slower innovation and growth across AI model development and hardware manufacturing, impacting companies like Nvidia.
- The 2025 tariff threats could potentially incite a shift towards decentralized finance (DeFi) and decentralized exchange (DEX) platforms, as global traders seek alternative avenues for finance and investment that may be more resilient to tariff-related disruptions in traditional financial markets.
