Ten days, $5 trillion lost: The cost of a trade war unleashed

The pain, said Shuntaro Takeuchi, was 10 out of 10.

Not in the portfolio of Japanese stocks he runs out of San Francisco, California, but in his appendix.

It would have to come out, just as his colleagues at Matthews Asia were on a phone call to chart the $7 billion asset manager’s path through a deepening market rout.

“I was on a conference call two minutes before the surgery,” said Takeuchi. “The nurse was like: ‘Do you really have to attend this?'”

In Tokyo, the Nikkei was on its way to Wednesday’s 4% drop and trillions were being wiped from global equities, the largest dollar-value drops of any market drawdown on record.

The 10 trading days since U.S. President Donald Trump hit automakers with tariffs have been the most convulsive since the pandemic panic of 2020, as prices of stocks to bonds, oil, gold and even the U.S. dollar itself have swung wildly.

Selling in U.S. Treasuries – the lynchpin safe asset in global markets – was the heaviest for decades, as if to underline how the foundations of trade and finance have been shaken.

The meltdown began in the wake of what Trump called “Liberation Day”.

He raised, on April 2, the highest wall of tariffs around the U.S. economy in a hundred years with a blanket 10% tax on imports and even higher rates on individual trading partners.

In the week that has followed that has morphed into open economic conflict with China, which by Friday was all but under a U.S. trade embargo as tariffs rose to 145%.

More than $5 trillion in market value has vanished from the MSCI all-country index of world stocks during the roller-coaster ride since April 2. It has exposed how investors were unprepared for the aggression of Trump’s tariffs and that his unpredictability and reversals risk harming the United States’ place at the centre of the financial universe.

“We’ve had a fracturing of confidence and we don’t know what the second-order effects of that are from the market falling,” said Geoff Wilson, a veteran fund manager in Australia.

“There could be some hedge funds that have gone under, there could be other consequences which will only become clear over the next few weeks.” His funds were buyers in the turmoil.

TOMB SWEEPING

At first the epicentre of selling was in any sort of exposure to economic growth – banks, industrial metals and firms such as Apple with supply chains anchored in China.

Then, just before sundown on April 4 in Beijing, on tomb sweeping day – a national holiday to pay respects to ancestors, China retaliated and put a 34% tariff on imports from the U.S.

Oil plunged to a four-year low and the main global stock market index tipped past the threshold for what market-types call a “correction” – a drawdown of 10% or more from a peak.

Even gold, seen as a haven in times of turmoil, started tumbling, an ominous sign as investors who faced margin calls were forced to sell their safest assets to square losses.

For Wong Kok Hoi, founder and chief executive officer of APS Asset Management in Singapore, it was a scenario he has been worrying about for years.

“Obviously, I did not in my wildest dreams think tariff rates could go up as high as 125%,” he said, as subsequent days saw tit-for-tat levies ratchet higher.

“Basically, trade will stop between the two largest economies in the world.”

Handily, for him, he had positioned into China’s semiconductor, artificial intelligence and biotechnology sectors and said his portfolio was up some 20% for the year so far.

TRADE WAR

On Wall Street, bankers dialled in to global meetings and tried to reassure rattled clients.

There were hopes, last weekend, that Trump would relent before the tariffs actually hit.

But returning from a weekend golfing reporters asked him about markets on Air Force One on Sunday and he replied that “sometimes you have to take medicine.”

That opened the floodgates. Nasdaq 100 futures were soon down more than 5% and Nikkei futures hit a circuit breaker after diving 8%, then kept falling.

The CBOE Volatility Index, nicknamed Wall Street’s “fear gauge”, spiked above 60 – a level usually seen during meltdowns such as 2020 or the 2008 financial crisis.

The S&P 500 finished the day 17% below a record high it had hit just seven weeks earlier. Christopher Forbes, head of Asia at CMC Markets said Friday and Monday were the highest volume trading days on record.

Takeuchi, in California, aside from his rush to surgery, was trying to make sure his portfolio was as sheltered as possible.

“We did trade,” he said, buying and selling when stocks in his book or watch list hit target or buy prices, finding companies with limited U.S. exposure, but not wanting to make big bets on sectors or the outcome of Trump’s trade war.

“I don’t want to be too dramatic about it. What we are doing is to not panic, control the risk and focus on stock selection.”

BOND FIRE

For months currency markets, as the means of global trade, were expected to be the front line for price adjustments to tariffs.

The shock, instead, came from bonds. Shortly after the tariffs took effect in the middle of the New York night, a massive wave of selling hit Treasuries in Asia on Wednesday.

Yields, which usually make small moves since the market is liquid and deep, rose wildly and unleashed the most manic phase – so far – of markets’ tariff tantrum.

The 10-year Treasury yield jumped nearly 20 basis points in two hours in what traders took as a signal of either forced selling somewhere in the market, or even more worryingly, that U.S. bonds were faltering as a safe haven.

But within hours, markets were whipsawed again. Trump stunned the world by announcing a pause on the heavier bilateral tariffs, keeping a blanket 10% tax on imports and raising levies again on China.

Equities roared higher, notching some of the largest percentage gains since 2008, but with so much uncertainty they have started to wobble again.

WHIPLASH

Martin Whetton, Westpac’s head of financial markets strategy and a 30-year veteran of markets in Sydney and London, said Wednesday’s trade in fixed income had no historical precedent.

“That money did not scramble to secure U.S. dollar funding, to buy Treasuries and the U.S dollar for safety, is startling and a sharp warning,” he said.

By Friday, the eleventh session since Trump’s auto tariffs were announced, exhaustion had set in but there was little sense of dust settling. Beijing on Friday increased its tariffs on U.S. imports to 125%.

Stocks fell, the dollar sank to a decade-low on the safe-haven Swiss franc and talk turned to whether the period marks the beginning of the end of U.S. dominance of global finance.

“It’s like we had a year of trading in a few days,” said Jack McIntyre, portfolio manager for Brandywine Global, U.S, which runs almost $60 billion in assets.

“You focus on things that you know,” he said, with a view to further falls in the dollar as the U.S. economy slows down and, maybe, the rest of the world keeps selling U.S. assets.

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Published on April 13, 2025