Stock market crash: expert comments

Global markets have plummeted following the announcement of President Trump's tariffs. Experts from the ICMA Centre at Henley Business School have issued the following comments in response.

To arrange interviews, contact the 桃色视频 Press Office on 0118 378 5757 or pressoffice@reading.ac.uk. 

Also read:  by Professor Radu Tunaru, Professor of Finance and Risk Management at Henley Business School. 

Professor Simone Varotto, professor of finance at the ICMA Centre, part of Henley Business School at the 桃色视频, said: 

“If you're wondering why we should care about volatility on global share prices, it's not just because your pension pot may have just lost a good chunk of its value. Stock markets are an indicator of what investors think is coming next for the real economy, and what they are saying looks bad. An economic recession will have an impact on many aspects of our lives, from our homes and jobs to crucial public services.

"America's biggest banks, such as Goldman Sachs, are saying it's more likely that the US will go into recession in the next year as a result of Trump's tariffs. And if the US economy tanks, most countries will follow. Stock markets are losing ground because they are factoring in the above scenarios. The stock market correction is justified, considering the slower economic growth and higher inflation that are expected to hit most economies.

"From an economic perspective, the current US trade policy does not make any sense, which is spooking investors as they do not know what to expect next. Markets hate uncertainty. 
"Given that most countries will apply retaliatory tariffs, it is unclear whether the US will keep increasing tariffs in response. If this happens, we should expect further blows to international trade, with more drastic economic consequences.

"We should be careful not to draw too many parallels from other stock market falls from the past. What is happening now is different to 1987's Black Monday, because the circumstances then were very different. Fundamentally, it is difficult to predict what will happen next because we do not know what the next steps will be for the Trump administration and other key players, such as the Federal Reserve.

"The reason that tariffs have generally gone down, and not up, over the last century is because there is a well-established theory of comparative advantage, which says that trade is beneficial for growth. Tariffs may be applied selectively to protect specific industries that are of national interest, such as energy, defence, pharmaceutical, or tech industries. But blanket and high tariffs such as those introduced by the US go against decades of established understanding of economics and trade.

"After the Great Depression in the 1930s, the US has helped build international trade policies aiming to reduce tariffs and promote free trade. This is U-turn that, despite being heavily promoted by the US administration, has left economic players shocked and in disbelief."

"The turmoil we are seeing in the financial markets, following the announcement of sweeping tariffs by the US government, has led to a sharp decline in major stock indices in the US on Friday. The falls have continued in Asian and European markets today.

"China's proposal of retaliatory measures to Trump's tariffs by imposing an additional 34% tax on US goods, is escalating fears of a global trade war. This tit-for-tat exchange creates uncertainly and is likely to lead to increased market volatility and potential economic slowdowns as countries implement their own countermeasures. 

"Indicators of market volatility are very high. One such index, VIX, has reached the highest level since the Covid pandemic, signalling that market volatility and uncertainty is likely to stay high for a while. Investors in the stock market, which includes many people's pension funds and long-term savers, are bracing for continued fluctuations. Investors are considering defensive strategies to mitigate potential losses, by selling off shares, or buying gold, a traditionally 'safe' asset in times of crisis.

"The increased risks stems from the uncertainty surrounding international trade relations and the potential for a full-scale trade war. Such conflicts can disrupt global supply chains, which increases costs for consumers who will ultimately pay the price of these measures through more expensive goods. This will impact businesses and dampen economic growth worldwide. A prolonged series of trade disputes could push major economies into recession, further exacerbating market instability.

"The resolution of these tensions will depend on diplomatic negotiations between the involved nations. The future trajectory of the markets hinges on the ability of global leaders to reach mutually beneficial trade agreements and de-escalate the current conflict. Investors, as always, are monitoring developments closely, while trying to avoid making impulsive portfolio decisions."

Professor Peter Miskell, Professor of International Business and Media History at Henley Business School said: 

"For approximately the last half century the global economy has embraced trade liberalisation. Restrictions of the movement of goods and capital have been loosened, national economies have become more specialised in areas of comparative advantage, supply chains have become more globally interconnected, political parties of right and left have accepted these as economic realities. The result has been the rapid industrialisation of emerging markets, along with continued economic growth and low rates of inflation in the more advanced (post)industrial economies. But the system has increasingly been coming under strain. The global financial crisis of 2008 highlighted the risks associated with high levels of (public and private) debt. Meanwhile, political opposition has been steadily mounting in the West against the social and cultural disruptions wrought by liberalisation, be it the decline of industrial manufacturing or the growth of immigration.

"While Trump’s tariff policy may appear economically illiterate to those wishing to preserve the current liberal world order, looked at in historical perspective it speaks to a much older (and quite fundamental) set of political questions about who benefits most from free trade – and who deserves to be protected from it.

"In nineteenth century Britain (the global economic powerhouse of its day) these same questions were at the core of debates about the Corn Laws. Then, it was land owners and agricultural workers seeking (tariff) protection from cheap food imports, with an emerging industrial population in fast-growing cities like Manchester demanding free trade, and by extension, cheap bread. The land owners may have been fewer in number, but had powerful political connections. The debates played out over decades before the weight of demand from consumers in industrial cities eventually held sway, and Britain sought to establish its reputation as free trade nation.

"This time around it seems to be the interests of industrial workers and post-industrial consumers that are being set in opposition. It may take some time for a decisive outcome to be established, but in the meantime we can expect the political and economic uncertainty to continue."