FTSE 100 falls as IMF warns of Trump tariffs

[EUROPE] The FTSE 100 plunged to its lowest level since January on Thursday as global markets reacted to a stark warning from the International Monetary Fund (IMF) regarding the economic risks posed by former U.S. President Donald Trump’s proposed tariffs. The IMF cautioned that the potential reinstatement of sweeping trade barriers could significantly disrupt global trade, leading to economic slowdowns across multiple regions.

Market Reaction: FTSE 100 Declines Amid Global Uncertainty

The UK’s benchmark stock index, the FTSE 100, closed 2.3% lower, marking its weakest performance in over two months. The decline mirrored losses in European and U.S. markets as investors weighed the implications of renewed trade tensions. Key sectors including banking, manufacturing, and consumer goods suffered sharp declines, with major UK firms such as Barclays, Unilever, and Rolls-Royce experiencing notable drops in share prices.

“The market is reacting to heightened uncertainty over global trade policies,” said Susannah Streeter, head of markets at Hargreaves Lansdown. “The prospect of Trump returning to office with a protectionist agenda is causing investor jitters.”

IMF’s Warning: Economic Consequences of Trade Barriers

The IMF released its latest global economic outlook, highlighting concerns that a return to aggressive tariff policies—such as the proposed 10% universal tariff on imports to the U.S.—could trigger inflationary pressures, disrupt supply chains, and slow economic growth worldwide.

According to IMF Chief Economist Pierre-Olivier Gourinchas, “Trade restrictions of this magnitude would significantly impact both emerging and developed economies, reducing overall GDP growth and increasing price volatility.”

The IMF’s report estimates that if such tariffs are enacted, global GDP could shrink by up to 1% over the next two years, with nations heavily reliant on exports to the U.S. being the hardest hit. This includes economies in Europe, China, and parts of Southeast Asia.

Investor Concerns and Market Volatility

Investors are now bracing for a prolonged period of volatility as political uncertainties in the U.S. add another layer of complexity to an already fragile global economy. The FTSE 100, which had been steadily recovering since the beginning of the year, is now facing renewed pressure amid fears that economic growth may falter.

Analysts warn that if Trump follows through with his tariff threats, central banks may struggle to manage inflation while maintaining economic stability. “Policymakers are already dealing with the aftershocks of high inflation and tight monetary policies,” said Paul Dales, chief UK economist at Capital Economics. “Further trade disruptions could force a reassessment of interest rate strategies.”

Impact on UK Businesses and Trade

For the UK, Trump’s proposed tariffs pose a direct challenge to businesses reliant on exports to the U.S. Key industries, including automotive, pharmaceuticals, and financial services, could face higher costs and reduced access to the American market.

British companies with significant exposure to U.S. trade, such as GlaxoSmithKline and AstraZeneca, saw their shares decline as concerns over potential trade barriers mounted. The Confederation of British Industry (CBI) has urged UK policymakers to engage in diplomatic discussions with Washington to mitigate potential economic fallout.

Looking Ahead: Key Risks and Market Outlook

With global markets on edge, all eyes are now on upcoming policy announcements from the U.S. Federal Reserve and the Bank of England. Traders will also be closely monitoring Trump’s campaign rhetoric and any signals regarding his trade policies.

While some investors believe that markets may eventually stabilize, the prevailing sentiment remains cautious. “We could see a sustained period of uncertainty as businesses and investors adjust to the changing economic landscape,” said Michael Hewson, chief market analyst at CMC Markets.

As geopolitical and economic risks continue to shape market movements, the FTSE 100’s trajectory in the coming weeks will likely depend on further developments in U.S. trade policy and global economic forecasts.