- 4/9/2025

Not all crises are the same

The last time we saw a downturn like this was in 2020, with the Covid pandemic. In a matter of days, the major stock markets plummeted by 40% and the oil market collapsed. The spectre of recession loomed over a world that had come to a standstill due to the pandemic.

A long list of objections

Today, the crisis is sparked by the trade war initiated by President Trump. He aims to restore his country's competitiveness and attractiveness by addressing a complex web of issues that have developed over time, resulting in a massive deficit in the U.S. trade accounts. This has led to decades of de-industrialisation and job losses in the U.S., as other regions of the world have gained an advantage. At least, that's the perspective presented in the Executive Office's "Foreign Trade Barriers in 2025" report. This 400-page document outlines the U.S. government's main objections to its trading partners in surprising detail, highlighting the significant work that lies ahead to resolve these issues.

Chaos caused unilaterally

Every crisis is different. But this time there is one element that deserves attention, as it can have an impact on the outcome of the storm. In contrast to the last two major crises - the 2020 health crisis and the 2008 financial crisis - which had tangible and external causes, this time there is a deliberate catalyst. Prior to Donald Trump's aggressive statements and the trade war, the markets were performing well, and the economic situation was stable globally, with a promising outlook. Although each country faced its own challenges, and the geopolitical context was tense, the financial markets, which primarily focus on economic fundamentals, had no reason to descend into chaos. The trade war and Trump's provocative statements about government efficiency, as well as his suggestions of annexing Greenland or even Canada, have introduced an element of unpredictability that has shaken the markets.

Who do we call for help?

In past crises, the panic on the markets was alleviated by the intervention of a key player: the central bank, or 'lender of last resort'. In both cases, in 2008 and 2020, it was enough for the central banks to take action to calm things down. By injecting massive amounts of liquidity into the financial system, they helped prevent a recession and liquidity crisis. The central banks' intervention marked a turning point in the stock market downturn, even if it took months for markets to recover to pre-crisis levels.

But the current situation is very different. It's hard to imagine how central banks can intervene in the chaos caused by Trump’s actions. Negotiation with him will be necessary, but he is likely to be stubborn and unwilling to concede much, particularly with the mid-term elections still over a year away. Only when tensions ease through case-by-case compromises will the crisis reach its low point. For now, a little more patience is required…

The opinions in this blog are those of the authors and do not necessarily reflect the position of BNP Paribas Fortis.