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Tariffs are back in the news, and the financial markets have been jittery in response. Here’s a look at the dynamics at work.
Tariffs and other trade barriers
Economists rarely agree on much, but most share the view that well-structured international trade policies benefit all countries. They also tend to agree that tariffs, quotas, currency devaluation, and other trade barriers reduce global economic output. But it’s complicated, partly because what seems fair to one side looks like a trade barrier to the other. Trade alliances, such as the European Union and the United States–Mexico–Canada Agreement, can reduce trade barriers. Organizations such as the World Trade Organization can help resolve trade disputes. But sometimes it takes a trade war, or the threat of one, to make changes that work for everyone.
As trade tensions escalated this week, so did the market’s “fear gauge,” the Cboe Volatility Index (VIX), which at one point rocketed past 26 on Tuesday. (The VIX normally stays in the low to mid-teens; anything above 20 indicates anxiety.) Although a rise in volatility is typical during leadership transitions and changes in policy priorities, the stock market seems to be pricing in a higher level of uncertainty. Tariffs and tariff threats could bring parties to the negotiating table—or they could be met with retaliatory measures that spark a global recession. Tariffs could also stoke a fresh round of inflation. The status of other policy initiatives in areas such as immigration, education, and the federal workforce add to the uncertainty.
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Encyclopædia Britannica is proud to announce its partnership with Cipher News to deliver informative and accessible articles and stories about climate change, emerging climate tech, and the changing environmental policy dynamics of the moment (such as this new article on the conference of the parties). This collaboration is designed to strengthen and expand Britannica’s climate-related coverage by leveraging Cipher’s deep climate solutions expertise and clear-sighted reporting.
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