World Hit by Trump's Hammer on China

The United States to Lesotho have been affected by the surge in import tariff rates announced by Donald Trump. Decades of work were disrupted by an announcement lasting only a few minutes. Stagflation is once again approaching the U.S. economy.

A pessimistic outlook on the future was demonstrated by the central bank and major banks in the United States. In a note circulated on Friday evening (4/4/2025) New York time or Saturday morning WIB, JPMorgan analysts increased the probability of a recession. From 40 percent, the probability of a recession rose to 60 percent.

Analysts at the major U.S. investment bank stated that there is a very high likelihood of a recession occurring in the second half of 2025. JPMorgan's Chief Economist, Michael Feroli, estimates that the U.S. gross domestic product (GDP) will shrink by one percent in the third quarter of 2025. Meanwhile, in the fourth quarter, the U.S. GDP is projected to contract by 0.5 percent.

JPMorgan became the first major U.S. bank to openly state that the likelihood of a U.S. recession has increased due to Trump's policy on import tariffs (BMI). On April 2, 2024, the U.S. President announced an increase in BMI for commodities from nearly all countries.

The U.S., according to Feroli, has the potential to enter stagflation. This condition occurs when inflation is high while growth is low. "The projection of stagflation will present a dilemma for decision-makers at the Fed (Federal Reserve, the U.S. central bank)," he wrote.

In remarks hours before Feroli, Jerome Powell did not rule out the possibility of stagflation. "It is now clear that the rate hikes have been larger than anticipated. The corresponding impacts on the economy, which will include higher inflation and slower growth, are likely to be the case," the chairman of the Federal Reserve Board of Governors said.

Powell stated that the impact of inflation due to the increase in BMI could persist for a long time. This grim statement was immediately met with strong criticism from Trump. He urged the Fed to promptly cut the benchmark interest rate (SBA).

The era of globalization based on rules and free trade is over

SBA, one of the tools of the Fed, as well as the central banks of various other countries, is used to control inflation. When SBA increases, fund owners tend to save rather than spend or invest. Businesspeople also refrain from taking loans when interest rates rise.

The risk is that economic growth could slow down. Such a slowdown could increase unemployment. Feroli estimates that the U.S. unemployment rate could reach 5.3 percent. In March 2025, the U.S. unemployment rate was recorded at 4.2 percent.

RSM Senior Economist Joe Brusuelas even said that the current situation is similar to the end of 2007. At that time, various investment institutions ran out of funds when the market collapsed. The impact was the 2008 crisis that forced a number of banks to go bankrupt.

Lehman Brothers, founded in 1850, went bankrupt in the crisis. In Indonesia, the government bailed out Bank Century, fearing a repeat of the 1998 crisis.

The reason for the bailout of Bank Century was systemic risk. Now, according to Brusuelas, there is systemic risk from Trump's policies. Banks and financial institutions, said the investment advisory analyst, will be affected by Trump's tariffs.

Singapore Prime Minister Lawrence Wong did not hide his concerns about Trump's policies. "Singapore must prepare for the shocks that lie ahead, because the global calm and stability that once existed will not return anytime soon," he said.

Singapore has long relied on the global multilateral system, which has allowed Singapore to prosper by becoming a mediator and liaison for interests from all over the world.

Trump's decision, Wong said, has shaken the global order. "The era of rules-based globalization and free trade is over. We are entering a new era, one that is more unilateral, protectionist and dangerous," Wong continued.

He said the old system was not entirely perfect. Together with several other countries, Singapore is trying to push for reform of the order that Wong said was created and maintained by the US for decades.

"What the US is doing now is not reform. It is a complete disregard for the system it created," Wong said.

The US has indeed become the dominant global order after World War II. The world has been shocked since Trump withdrew the US from various multilateral agreements in his first term.

At that time, the trade war launched by Trump made investors shift investments from China to various countries. The hope was that market access would remain open and safe from US sanctions for China.

It's hard to have a constructive and constructive relationship with a country that just throws bricks at your head.

The terms re-shoring and friendshoring have emerged. With Trump's new policy, that strategy is no longer valid. Mass BMI, even imposed on Lesotho whose total exports to various countries are less than 1 billion US dollars, makes the global supply chain useless.

Trump clearly stated, open a factory in the US or get hit by BMI. That means, imported spare parts and raw materials will get hit by BMI. Production costs could soar, profits could be cut.

Potential profit cuts, recession projections, and uncertainty about economic performance have caused stock markets to plunge. The Straits Times Index, like stock market indexes in various countries, plunged after Trump's announcement. The index, which records the performance of the main issuers of the Singapore stock exchange, was corrected by 129 points in two days after Trump revealed the BMI.

The US stock market has also been in the red since Trump announced the mass BMI. The main US stock market indexes, namely the S&P 500, Nasdaq, and DJI, have fallen non-stop in the two trading days after Trump's announcement.

Closing at 5,669 on April 2, 2025, the S&P 500 plunged 594 points by the close of trading on Friday. The DJI was the worst hit, losing 3,956 points in the two trading days since Trump's announcement. The Nasdaq, meanwhile, fell 2,009 points in the same period.

The massive correction cut trillions of US dollars in valuations from the stock exchange. The assets of the world's 500 richest people were corrected by almost Rp 4,000 trillion in those two days.

Senior researcher at the ISEAS-Yusof Ishak Institute in Singapore, Siwage Dharma Negara, said that various countries were affected by Trump's policies. For Southeast Asia, China is actually the main target of the policy.

"The government thinks that by targeting these countries they can target Chinese investment in countries like Cambodia, Laos, Myanmar, Indonesia. By targeting their products, it can have an impact on Chinese exports and their economy," Siwage told The Guardian.

Although targeting China, the impact of US policy actually hits Southeast Asian countries. Because, Chinese investment or other countries in Southeast Asia bring export revenue and create jobs.

"Some garments and footwear are American brands like Nike, a US company that has factories in Indonesia. Will they (US factories in Indonesia) be subject to the same tariffs?" he continued.

Siwage's colleague at the same institute, Stephen Olson, said Trump's new policies would force ASEAN countries to reconsider their relationship with the US. "They could end up moving closer to China. It's hard to have a constructive and constructive relationship with a country that just throws bricks at your head," said the former US trade negotiator.

The US, Olson continued, now seems to be closing the door to imports. "We are facing two possible scenarios: either the affected partners hold the companies accountable and retaliate in the hope that Trump will back down. Or, they consider making a deal with Trump to avoid tariffs. There is no chance that either of those scenarios will end well," he continued. (AP/AFP)