US Trade Policy as a Trigger for Financial Market Volatility

Abstract

In today's globalised world, the trade policies of the world's leading economies play a key role in shaping trends in international financial markets. In recent years, US policy, in particular the introduction of customs tariffs and other trade restrictions, has been a powerful trigger for financial volatility. Such measures have not only changed the structure of world trade, but also increased uncertainty among investors, causing significant fluctuations in stock indices, exchange rates and international capital flows. The aim of this study is to determine the impact of US trade policy on the dynamics of financial markets and its role in shaping economic instability at the global level.

The paper describes the key stages of the implementation of US tariff policy in the first half of 2025, including the measures introduced and public statements made by the Donald Trump administration, which significantly influenced market sentiment and the dynamics of global financial indicators. The behaviour of the VIX volatility index as an integral indicator of expected instability in financial markets throughout the year is analysed. Particular attention is paid to the dynamics of the leading US stock markets – the S&P 500 and the Dow Jones Industrial Average – during March – April 2025, which were marked by the highest level of market tension due to the escalation of trade restrictions. The reaction of European financial markets (using the STOXX 600 index as an example) was studied, as well as the dynamics of the main stock indices in the Asia-Pacific region, in particular the Hang Seng, Nikkei 225 and Shanghai Composite. A correlation analysis was performed between the Trade Policy Uncertainty (TPU) index, the VIX index, the S&P 500 and NASDAQ stock indices, and the US dollar index (DXY) to identify the degree of correlation between US trade initiatives and the financial response of global markets. The main consequences of US trade policy, which significantly affect the stability of global financial markets, were summarised. It was concluded that US trade policy, in particular the application of tariffs and strict regulatory restrictions, causes increased volatility in stock and other international financial markets. This manifests itself in a decline in major stock indices, increased asset volatility, currency fluctuations and a decline in investor confidence, which negatively affects investment returns and worsens the investment climate at the global level.