Front News sat down with Professor Gocha Tutberidze, Rector of Central European University and an expert in economics and finance, to discuss the effects of US President Donald Trump’s tariff policies on global markets. In this interview, he elaborates on the causes of stock market volatility, investor concerns, and the broader economic consequences of trade wars.
– The stock market has been experiencing significant declines since President Trump announced tariff hikes on major trade partners. Over the past month, the Nasdaq technology index dropped by 11%, while the S&P 500 corrected by 8%. To what extent is this market fluctuation linked to the President’s economic policies?
– There is no doubt that President Trump’s statements and political decisions have a major impact on the stock market. His unpredictable approach to tariffs on neighboring countries and trade partners creates significant uncertainty. One day, he announces plans to impose tariffs on China, the European Union, Mexico, and Canada, and the next, he modifies or retracts these statements. This inconsistency makes it difficult for investors to make informed decisions. The biggest issue for the stock market is not the tariffs themselves but the uncertainty surrounding them. Investors do not know whether tariffs will be set at 25%, 50%, or not imposed at all. This lack of clarity negatively affects market confidence and disrupts business planning.
– How do these tariffs affect American consumers and businesses?
– Tariffs ultimately function as a tax on consumers. Higher tariffs mean higher costs for imported goods, which in turn leads to higher prices for domestic products as well. American businesses are also facing challenges because many rely on complex international supply chains. For instance, in the automobile industry, parts frequently cross borders multiple times before a car is assembled. Each crossing incurs additional tariffs, significantly increasing production costs. Car manufacturers and large corporations are deeply concerned, though many choose not to express their dissatisfaction publicly.
– Trump’s tariff threats have extended to multiple countries, including China, Mexico, Canada, and the European Union. Retaliatory measures are being prepared by these nations. Are we entering a new phase of a global trade war?
– From what I gather from Western media, there are indications that Trump may not impose these tariffs at all. He seems to be using them as a negotiation tool to push trade partners toward more favorable agreements. However, it is difficult to predict how this will play out. For instance, Trump has suggested raising tariffs on Canada to 50% instead of 25%, and Canada has already signaled its intent to respond in kind. Trump accuses other nations of taking advantage of the US, but it appears that he is using these statements as leverage. The ongoing uncertainty is what makes the market so volatile.
– Given this uncertainty, how are investors reacting? Are they moving capital away from the stock market?
– Many investors are shifting their capital toward safe-haven assets, particularly gold. This is why gold prices have reached record highs. Investors are looking for secure options as they wait to see how Trump’s policies unfold. Over the next couple of months, we will see whether the market stabilizes or if further shocks occur before a correction takes place.
– The risk of a full-scale trade war between the US and China has been a major concern. If relations deteriorate further, what impact could this have on the global economy?
– A trade war between the US and China would be a heavy blow to both economies. While the US runs a trade deficit with China, it is important to remember that China reinvests much of its earnings into US securities, which benefits the American economy. If trade tensions escalate, this dynamic could be disrupted, leading to economic instability on both sides. Additionally, China is facing its own economic challenges, particularly in the real estate sector, where oversupply has led to stagnation. Given the interconnected nature of today’s global markets, no one benefits from a trade war, and all parties involved will suffer.
– Trump has also targeted Europe with tariffs, particularly on automobiles, claiming that Europe has been taking advantage of the US economy. Who stands to lose more in this situation – Europe or the US?
– The damage would be mutual. European manufacturers have spent years developing products specifically for the American market, tailoring their designs to consumer preferences. If the US imposes tariffs, European companies will likely shift their focus to Asia and other regions, but this transition will take time. American importers will also suffer, as prices for European goods will rise, affecting both businesses and consumers. Trade relationships are built over decades, and disrupting them will create inefficiencies and economic losses on both sides.
– Given these economic tensions, is there a risk of global de-dollarization?
– That is unlikely in the near future. The US dollar remains the world’s dominant reserve currency, especially since global oil trade is conducted primarily in dollars. While the uncertainty surrounding US trade policies has led to some depreciation of the dollar against the euro, this could actually be beneficial for American exports by making them more competitive. I do not foresee any serious threats to the dollar’s stability in the short term.
– How do these global economic developments affect Georgia and the stability of the lari?
– Georgia, like any country in the global economy, is affected to some extent by these trade conflicts. However, our direct exposure is limited. The US is a major supplier of used cars to Georgia, so any disruptions in that industry could have an impact. Our exports to the US are relatively small, consisting mainly of wine and ferroalloys. Interestingly, US tariffs on Mexican metals could actually benefit Georgia by driving up ferroalloy prices, increasing our export revenue.
As for the lari, I do not anticipate major instability. The currency’s value is primarily influenced by the policies of the National Bank of Georgia. While global economic conditions can contribute to fluctuations, I do not expect the lari to experience any catastrophic depreciation.
By Elza Paposhvili
