G2 Clash, Global Economy in Chaos... Even Safe Asset Gold Wobbles

Trump Tariffs and China's Retaliation

Trade War Escalation Leads to New York Stock Exchange Crash

U.S. 10-Year Treasury Yield Falls Below 4%

Investors Facing Margin Calls Sell Gold, Leading to Price Drop

The trade war initiated by Trump is converging into a clash between the G2, the United States and China. While other countries are refraining from immediate tariff responses to U.S. President Donald Trump's high tariffs, China was the first to retaliate with tariffs, leading to a full-scale confrontation.

As the U.S., the world's consumer engine, and China, the global production hub, start a tariff war, concerns about a global economic recession are deepening. The New York and European stock markets plummeted, and international oil prices also collapsed.

The sudden stock market collapse even dragged down gold prices. It is analyzed that leveraged investors, who faced liquidity shortages due to consecutive stock price drops, sold gold to realize profits.

U.S.-China Tariff War

The Trump administration began applying a basic 10% tariff on all imports from the 5th (local time). From the 9th, reciprocal tariffs will be imposed by country. The highest tariff was imposed on China, which has been subject to a 20% tariff since President Donald Trump took office, and with an additional 34% reciprocal tariff, a total tariff rate of 54% is applied.

The Chinese government immediately responded. On the 4th, it imposed a 34% tariff on the U.S. and took measures to control exports of rare earths. It also banned the export of dual-use items (items that can be used for both military and civilian purposes) to 16 U.S. defense companies.

As the U.S.-China trade war escalated into a full-scale war, global stock markets collapsed. The U.S. S&P 500 index plummeted more than 10% in two days, and the total market capitalization of the New York Stock Exchange evaporated by $6.6 trillion. The retaliatory war between the two countries reignited inflation and increased the possibility of an economic recession due to reduced trade volume. In particular, JP Morgan Chase's U.S. Chief Economist Michael Feroli said, "We expect the U.S. economic growth rate this year to drop from the previous 1.3% to -0.3%."

As recession fears spread, international oil prices also plummeted. On the New York Mercantile Exchange, the April delivery of West Texas Intermediate (WTI) crude futures closed at $61.99 per barrel, down 7.4% from the previous session. This is the lowest level since April 2021, during the pandemic. WTI prices also fell sharply by 6.6% the previous day. As investors flocked to safe assets, the yield on the U.S. 10-year Treasury fell to 3.864% on the 4th.

Gold Prices↓ Due to Liquidity Shortage

Although demand for safe assets increased due to the tariff war, international gold prices plummeted nearly 3%. On the New York Mercantile Exchange, the June delivery of gold futures closed at $3,024.2 per ounce, down 2.9% from the previous session.

Experts analyze that investors facing liquidity shortages due to the global stock market crash have moved to realize profits. Investors who used leverage to buy stocks faced margin calls due to the sharp drop in stock prices and urgently sold gold to secure cash.

According to the U.S. Financial Industry Regulatory Authority (FINRA), as of February 2025, the leverage scale on the New York Stock Exchange is about $918.1 billion, an increase of about 24% compared to the same period last year.

As gold demand increased, the German government is considering withdrawing about 1,200 tons of gold deposited with the New York Federal Reserve Bank. The British daily Telegraph reported that senior officials of the Christian Democratic Union (CDU), part of Germany's next ruling coalition, are discussing withdrawing Germany's gold bars in New York due to concerns that the U.S. is no longer a reliable partner after the inauguration of Trump's second administration.

"Trade War is a Gift to Xi Jinping"

Despite growing recession concerns, U.S. Federal Reserve Chairman Jerome Powell maintained that it is too early to mention changes in monetary policy. In a public speech at a conference in Arlington, Virginia, Powell said, "Uncertainty remains high, but it is becoming clear that the tariff increase will be much larger than expected," and "The economic impact is likely to be similar, including rising inflation and slowing growth." However, regarding changes in the monetary policy path, he said, "It is still too early to say what the appropriate path for monetary policy will be."

On the same day, President Trump posted on Truth Social amid the New York Stock Exchange crash, saying, "Cut rates, Jerome. Stop playing politics," pressing for a rate cut again.

Meanwhile, there is also a diagnosis that President Trump's tariff war is elevating Chinese President Xi Jinping as the winner. The Wall Street Journal (WSJ) pointed out in an editorial titled 'U.S. Tariffs Made Xi Jinping's Day' that President Trump's global trade war could be a strategic gift to President Xi. WSJ noted that President Trump has cut the economic ties that have been binding countries into economic and strategic blocks to contain China. New York = Park Shin-young Correspondent nyusos@hankyung.com