Title:
WALL STREET TO WORLDWIDE: THE IMPACT OF US TRADE WARS ON GLOBAL STOCK MARKET PERFORMANCE

Authors:
Dr. Kristin Marian Martin, Ph.D., Aayushi P and Jessica Gabriella G

Abstract:
In the last ten years, the revival of protectionist trade policies—especially those initiated by the United States—has altered the landscape of global financial markets. This research explores the influence of U.S.-led trade conflicts, particularly those directed at China and the European Union, on stock market fluctuations across major global indices. Through a combination of empirical research and theoretical modelling, we highlight the channels through which uncertainty related to trade policies, tariffs, and retaliatory actions lead to increased market volatility. Our results indicate that announcements and escalations of trade wars act as significant triggers for spikes in volatility, with especially marked effects observed in emerging markets, economies reliant on exports, and sectors dependent on global supply chains like technology and manufacturing. The study reveals a spill over effect beginning at Wall Street: when U.S. stocks react intensely to developments in trade wars, correlated volatility spreads to European, Asian, and Latin American markets. By employing GARCH-based models and event study techniques, we find that not only do U.S. policy measures prompt immediate recalibrations of risk around the world, but the expectation of policy changes also drives pre-emptive actions by investors. Additionally, the asymmetry in how markets respond is significant—while negative trade news tends to produce markedly higher volatility than favourable developments, market recovery speeds differ based on the level of regional exposure to U.S. trade activities. Our research highlights the influence of financial interconnectedness and media-driven perceptions in intensifying these effects. Algorithmic trading and rapid data exchanges also play a role in the swift transmission of shocks. We further investigate how institutional responses, such as central bank interventions and government financial support, can alleviate volatility in impacted areas, though with a lagged effect. The study concludes by stressing the critical importance for global investors, regulatory bodies, and policymakers to keep a close watch on U.S. trade policy as a systemic risk factor. Given that global financial systems remain intricately linked, localized policy moves in the United States increasingly have worldwide implications. The escalating unpredictability of trade negotiations thus poses not only an economic hurdle but also a significant concern for financial stability. This research adds to the expanding body of literature on geopolitical risks and financial markets by offering a thorough, cross-border examination of volatility induced by trade. The findings underscore that in an era of economic interdependence, volatility on Wall Street does not remain localized—it resonates on a global scale.

Keywords:
Stock Market, Trade war, US-China relations, tariffs, financial economics, market volatility, monetary policy, global trade, geopolitical risk, financial markets

DOI:
https://doi.org/10.37500/IJESSR.2025.8428

Date of Publication: 31-08-2025