[Source/Observer Network, Shao Yun]
The US stock market lost $6.6 trillion in two days, and hedge funds are experiencing the largest margin call since the pandemic... From "Liberation Day" to "Market Crash Day," President Trump's "reciprocal tariff" offensive has sent chills through the global financial markets and sounded the alarm for a US economic recession. Both JPMorgan Chase and Goldman Sachs have downgraded their expectations for this year's US economic growth.
"Trump now has to take responsibility for the economy." The Wall Street Journal criticized recently that Trump's tariff policies have reversed the prospects of American economic development in just a few days. An editorial on April 4th criticized that "this tariff blunder is entirely his fault" (the tariff blunder is his alone). Once Trump started this war, he must be held accountable for future price levels, employment, and economic development issues in the United States.
"Reminds me of the pandemic"
According to a report by the Financial Times on April 5th, after Trump's tariff policies triggered a sell-off in global markets, multiple hedge funds received margin calls from banks due to a significant drop in the value of their assets. This is the largest such occurrence since the early stages of the 2020 pandemic.
The report cited sources saying that several major Wall Street banks issued these notices. It was reported that some prime brokerage (PB) teams responsible for lending to hedge funds at major American banks arrived at the office early on the morning of April 4th to hold an all-hands meeting to prepare for issuing a large number of margin calls to clients.
"Interest rates, stocks, and oil have plummeted... It's the breadth of the overall volatility that caused the scale of the margin calls." A senior executive of PB business at a large American bank said, adding that it reminded him of the market volatility in the early months of the pandemic. Another senior executive of PB business at a large American bank said, "We are actively contacting our clients to help them understand the risks across their entire portfolios."
On April 2nd, Trump announced the so-called "reciprocal tariff" measures, which drew severe criticism from the international community, causing global markets to become volatile. The S&P 500 Index, which tracks the top 500 companies in the United States, plunged by 4.8%, marking its worst single-day performance since the economic impact of the pandemic in 2020. Crude oil and high-yield corporate bonds were also heavily sold off.
Local time on April 2nd, 2025, Washington D.C., Trump delivered a speech at the Rose Garden of the White House during the "Let America Get Rich Again" event and then signed the "Reciprocal Tariff" executive order. Visual China
In terms of sectors, the sell-off was mainly concentrated in large technology stocks, artificial intelligence-related concepts (such as software and chips), high-end consumer goods, and investment banking. Affected by the sell-off, the net leverage ratio of hedge funds—the degree to which they use borrowing to amplify investments—dropped to its lowest level in 18 months, reaching only 42%. The report pointed out that some funds reduced their equity holdings and lowered their leverage levels to mitigate risks; otherwise, the losses could have been even more severe.
It is worth noting that traditional safe-haven assets like gold also unexpectedly fell by 2.9% on April 4th. The Financial Times said market analysts believe this may be due to investors being forced to sell gold assets to raise funds to meet margin calls.
American "Blood is Coming"
In the past few days, Trump's "reciprocal tariff" has brought unprecedented shocks to global capital markets. According to Dow Jones Market Data, in just two trading days on April 4th and 5th, the value of the US stock market evaporated by about $6.6 trillion, setting a record high. Since January 17th, the last Friday before Trump officially took office, the US stock market has lost approximately $11.1 trillion.
Since Trump announced the tariffs, the three major US stock indices have plummeted sharply. CNN graphic
Many US media outlets are concerned that this will put pressure on the US economic outlook. On April 4th, the US Bureau of Labor Statistics released statistics showing that US non-farm payrolls increased by 228,000 people in March, with the unemployment rate remaining at a low level of 4.2%, better than expected. "But after what Trump called 'Liberation Day,' the world has changed." The Wall Street Journal lamented on April 6th that in just a few days, the US economic outlook has shifted from steady growth to having recession risks.
James Bruce Caseman, chief economist at JPMorgan Chase, published a report titled "Blood is Coming" on March 3rd, raising the probability of a global economic recession from 40% to 60%. The report predicts that real GDP in the fourth quarter of 2025 will contract by 0.3% year-on-year; the previous forecast was growth of 1.3%. The report also believes that next year's US unemployment rate will rise to 5.3%.
The Wall Street Journal mentioned that some experts believe that although current data is not yet sufficient to predict a technical recession (typically defined as two consecutive quarters of GDP contraction), this does not mean that people will not feel the pain of a recession. "Actual consumption may be extremely weak, and people's feelings may be worse than what GDP data shows," said David Seif, chief economist at Nomura.
The Yale Budget Lab estimates that the "reciprocal tariff" will increase the average effective US tariff rate from 2.5% in 2024 to about 22.5%. Combined with the tariffs introduced in February and March by Trump, this will push prices up by 2.3% in the short term, equivalent to a reduction of $3,800 in the purchasing power of the average household. Ernie Tedeschi, director of the lab's economics department, said this would reduce the US GDP growth rate in the fourth quarter by about 0.9 percentage points year-on-year.
The report said this also puts the Federal Reserve in a dilemma because in the past, economic slowdowns were often accompanied by falling inflation, creating space for interest rate cuts. But if the shock itself is caused by rising prices, while economic decline occurs alongside rising inflation, stagflation can occur.
The Wall Street Journal analyzed that if this round of inflation is temporary, the Federal Reserve might still be able to cut interest rates as the market expects to save the market. But if businesses and consumers form expectations of persistently high future inflation, the Federal Reserve may hesitate to act until the signs of economic weakness become very obvious, at which point it may already be too late.
"The Federal Reserve is helpless, I don't think it's likely to take monetary policy support measures." Blerina Uruçi, chief US economist at T. Rowe Price Group, said, "I do think that if we want to avoid an economic recession this year, we must rely on the resilience of American consumers and absorb this shock."
However, the report pointed out that compared to when the US once entered a "technical recession" in 2022, the current US labor market has clearly softened, with tight finances for low-income households and rising loan default rates. In addition, Trump is cutting federal jobs and contract spending, while Republican lawmakers in Congress are coordinating tax cuts and reducing budget deficits. If fiscal tightening continues, it may further drag down the US economy.
In the eyes of The Wall Street Journal, Trump has to take full responsibility for the current economy. He may blame the Federal Reserve, but the failure of tariff policies is entirely his own responsibility.
The sharp decline in US stocks has also been affected by countermeasures from China, and Trump even blamed China. The Wall Street Journal editorial on April 4th believed that "China naturally needs to consider its own situation, and they hope Trump and the United States also feel pain." This time, Trump cannot "blame" the Federal Reserve or former Biden, because "the public knows that the problem now is Trump's economy."
"Trade wars are easy to start, but once retaliation begins, it's hard to stop. Mr. Trump started this war, and he has to take responsibility for the next steps in prices, employment, and economic growth." The Wall Street Journal wrote.
This article is an exclusive contribution from Observer Network and cannot be reprinted without permission.
Original source: https://www.toutiao.com/article/7490220334205993509/
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