Trade Tensions Sink Emerging Markets Amidst U.S.-China Tariff Escalation

Emerging markets experienced declines as U.S.-China trade tensions escalated with increased tariffs. Beijing retaliated against U.S. duties, affecting global economies and causing market volatility. Analysts suspect global recession risks, impacting currencies, stocks, and bonds. The uncertain environment poses challenges for supply chain planning and trade negotiations during a temporary pause in U.S. levies.

Emerging market stocks faced a tough week, dropping as trade tensions between the U.S. and China intensified following a series of tariff escalations. Beijing's increase in tariffs on U.S. imports followed President Trump's decision to raise duties on Chinese goods, igniting fears of a trade war impacting global supply chains.

The repercussions have been felt across global currencies and stock markets. The Indian rupee and South African rand saw gains paring back, while European currencies like the Hungarian forint weakened. China's stocks finished higher before the retaliation, but the broader MSCI EM index is headed for its steepest fall since August 2023, illustrating the strain caused by fluctuating U.S. policies.

Amidst the instability, markets watch keenly for new trade agreements during the 90-day pause on U.S. tariffs. Analysts predict slowed growth for China's economy and note a weakening dollar against the Swiss franc and Japanese yen, reflecting eroding confidence in the U.S. Investors continue to track global economic responses and IMF discussions affecting vulnerable economies like Sri Lanka.

(With inputs from agencies.)