Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Understanding Tariffs and Market Volatility with XTB: Your Questions Answered
Ruby Layram
14th Apr 2025
The world of global trade and financial markets can seem complex, especially with recent discussions around tariffs. MoneyMagpie is here to break it down for you. Let’s tackle some key questions about tariffs and their impact on the markets.
What Exactly Are These Tariffs We Keep Hearing About?
Tariffs are essentially taxes imposed on goods imported from other countries.
Recently, there’s been a lot of talk about new tariffs introduced by the US. Initially, a broad 10% tariff was announced, alongside potentially higher “reciprocal” tariffs. Donald Trump’s imposition of tariffs has been characterised by a series of actions aimed at reshaping U.S. trade policy, often leading to significant international repercussions. Here’s a summary of the key aspects:
Broad tariff implementation
Donald Trump enacted tariffs on various imported goods, most notably steel and aluminum, affecting numerous trading partners.
There has also been a 10% baseline tariff placed on most countries. There has also been the introduction of “reciprocal tariffs”, that were to be placed on countries that the United States had a trade deficit with. These have been paused for 90 days for most countries.
Targeting China
A significant focus of Trump’s trade policy has been on China, with escalating tariffs imposed on Chinese goods. These actions were intended to address what the U.S. perceived as unfair trade practices, including intellectual property theft and forced technology transfers.
Currently there is a 125% tariff on goods coming from China.
Trade tensions and retaliation
Trump’s tariffs triggered retaliatory measures from affected countries, leading to trade tensions and, in some cases, trade wars. These retaliatory tariffs impacted U.S. exports, particularly in the agricultural sector.
Impact on global markets
The tariff actions contributed to increased market volatility and uncertainty, affecting global supply chains and economic growth. There have been fears of increased cost to consumers, due to the increase in cost to import goods.
How Do These Tariffs Affect the Financial Markets?
Tariffs create uncertainty, and markets dislike uncertainty. When tariffs were announced, it led to:
- Sharp Initial Declines: Following President Trump’s “Liberation Day” announcement of widespread tariffs on April 2, 2025, the S&P 500 experienced its worst two-day loss since the COVID-19 pandemic.
- Increased Volatility (VIX): Measures of market volatility, like the CBOE Volatility Index (VIX), often spike during periods of tariff-related news and implementation.
- Sector-Specific Impacts: Certain sectors are disproportionately affected. Industries relying heavily on imported materials face higher costs, or those targeted by retaliatory tariffs like agriculture can see significant stock price declines.
- Currency Fluctuations: After the initial tariff announcement, the US dollar weakened against the yen and euro. Simultaneously, currencies of countries heavily targeted by tariffs, like the Chinese Yuan (which hit a 19-month low), can also depreciate.
- Oil Price Drops: Oil prices saw a 7% drop immediately after the widespread tariff announcement.
- Market Rebounds on De-escalation: Conversely, any signs of easing trade tensions or pauses in tariff implementation can lead to significant market rallies, as seen after President Trump announced a 90-day pause on some tariffs, with the FTSE 100 rising over 6% on the day of the announcement. However, these rebounds can be fragile if underlying tensions remain.
Turning market volatility into opportunity with XTB
- Diversify your portfolio: XTB provides over 6,900 instruments, including Stocks, ETFs, Commodities, Indices, Forex, Flexible Stocks & Shares ISA, Investment Plans, and Fractional Shares
- Stay Informed: XTB provides access to real-time market analysis, a comprehensive economic calendar, and expert video updates from their research director, Kathleen Brooks.
- Learn and Adapt: Enhance your understanding of market dynamics with their educational articles covering essential topics like hedging, the role of volatility, and stop-loss orders.
- Identify Opportunities: Utilise technical analysis indicators to spot potential trends and trading opportunities more efficiently.
- Manage Risk: Protect your positions with their built-in risk management features, including stop-loss and take-profit orders.
- Minimal fees: Open an account for free and start investing with as little as £10. 0% commission* on Stock & ETF investing.
- Earn while you wait: For a limited time, you can earn a boosted 6.5% (4.5%+2%) AER interest rate on your uninvested GBP funds for the first 90 days! If you hold a standard investment account, the interest rate will remain at 4.5% (variable rate).
*For monthly turnover equivalent up to 100,000 EUR. Transactions above this limit will be charged a commission of 0.2% (minimum 10 GBP). 0.5% currency conversion cost may apply. Tax treatment depends on your individual circumstances and ISA regulations, which may change. Your capital is at risk. The value of your investments may go up or down.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Leave a Reply