Tariffs and War: How Trade Risks and Middle East Tensions Are Moving Global Markets

Tariffs and war are now shaping the same market story from two different directions. On the one hand, the trade statistics indicate that the tariffs already undermine the EU export machinery in industries such as iron, steel, chemicals and autos. On the other hand, the story of the Middle East ceasefire has made the risk sentiment better in the short run. The Strait of Hormuz was reopened in the short run and the global equities recovered as oil prices cooled. A combination of these forces forms a market that appears serene but exerts high economic pressure under the surface.

How Trump Tariffs Are Hitting EU Trade and Growth

EU trade figures are showing a dramatic decline in exports to the United States. In February EU exports to the U.S. decreased by 26.4%, on top of a 27.8% decrease in January. This decrease in exports also led to an overall decline of 60% in the EU trade surplus. While there are limitations to comparing these two time periods due to the fact that trade increased dramatically at the beginning of 2025, as companies were rushing shipments prior to the implementation of Trump’s tariffs. That means that some of the recent declines may be attributed to “pay-back” for the initial rush of front loading products rather than new damage to demand.

EU Exports to the U.S. Are Falling Sharply

Still, as a whole, this signal is negative. A better picture is provided in the fourth quarter of 2025 and that picture was poor. In those months, EU exports to the US fell by 15%. Exports of iron and steel decreased by about 38%. Chemical exports dropped between 60% and 80%. And car exports fell almost 22% (despite the tariff rate being cut).

The biggest issue is that the effects of tariffs generally take some time to develop. The past tariffs took about 2-3 years to show their complete effect on international trade flows. Therefore, the actual damage to the economy may yet come. According to Commerzbank’s estimates, US tariffs will decrease European Union’s GDP by 0.3% in 2026. The chart below shows that Euro GDP has already seen a decline since Q1 2025, but the real story may be building.

Copper and Aluminium Exports Show Where Tariffs Are Failing

In other words, while tariffs are an important trade story they represent a potential drag on economic growth. Tariffs can weaken business investment and manufacturing production and ultimately negatively impact earnings in companies with a significant amount of exports.

In other words, the loss of trade due to this tariff did not occur uniformly across all product categories. The EU’s exports of aluminium and copper (XCU) to the US continued to increase during the last quarter of 2025. Aluminium exports from the EU to the US increased by 9% while exports of copper and copper products to the US increased by 15%.

These increases occurred as a result of the need for materials by U.S. Due to a technical problem that resulted in an outage at one of the U.S. aluminium plants there was insufficient supply of aluminium domestically available for use by buyers. Similarly, since the amount of copper produced in the U.S. was not sufficient to meet demand for copper and copper products on behalf of buyers, these goods had to be imported. This is significant as it demonstrates that tariffs are not always effective at completely killing international trade.

Middle East Ceasefire Lowers Oil Risk but Markets Stay Cautious

The second part of the story has a geopolitical element. There are indications that there were two new ceasefires in the Middle East recently. The first was between the US and Iran and the second was between Lebanon and Israel. Iran immediately announced that it had opened the Strait of Hormuz. Since this route is considered to be a key artery for transporting much of the world’s energy, this change is important. Traders believe that as long as oil can move through this route without restriction the level of energy risk decreases and anxiety about rising inflation subsides. Then risk oriented assets get some breathing room again.

Signs of a ceasefire are already observed in the financial markets. This optimism helped to push the S&P 500 to near all-time highs. Similarly, the global equities rebounded and oil prices dropped. The lower oil prices support equity values since there might be a reduction in inflation pressure.WTI oil and Brent oil have dropped below $85 and $92, respectively. Gold (XAU) could continue to climb if investors feel uncertain about how long lasting the peace will be. In brief, markets are pricing as though it were less than a technical panic but not complete assurance.

That is why the geopolitical picture remains unstable. Ceasefires have had mixed success in the past. There are still significant political hurdles ahead for both Lebanon and Israel which adds an element of instability in the Middle East. While markets continue to react well to the reduction in short term disruptions, the underlying conflict has not been resolved. This maintains an element of risk for commodity prices, currency movements and safe havens.

Market Impact: How Tariffs and War Are Moving Currencies, Stocks, and Commodities

Impact on Major Currencies

US Dollar Index – Trade Support Meets Ceasefire Pressure

There are two opposing forces to the U.S. dollar. Tariffs may help the dollar in the short term by decreasing imports and drawing safe haven demand when global trade is under stress. However, when tariffs also retard U.S. growth, crowd out corporate margins and bring about policy uncertainty, this support can evaporate.

The war aspect of the narrative cuts both ways as well. A stable ceasefire decreases the panic demand for the dollar. The fact that oil prices are low also minimizes the type of inflation shock that would otherwise hold U.S. yields strong. Therefore, a cooler Middle East would soften the dollar to some extent in the short term. However, when the ceasefire is violated and energy paths are put under threat again, the dollar may soon resume safe haven status.

The chart below shows that the US dollar hit the 98 level and initiated a rebound from the support. A break below 97.50 will trigger a drop to the 96 level. However, a recovery above 99.10 will suggest another test of 100.50.

EURUSD – Weaker Trade Meets Softer Oil Risk

EURUSD is caught between the weaker euro area trade and a weaker risk premium in the dollar. The tariff story on the euro side is evidently negative. Exports are declining, many key industries are stressed and even the growth prospects of 2026 have already been hit. That undermines the backdrop of the euro.

But there is the other side. In case ceasefires are maintained and oil prices remain low, Europe will be spared as it is more vulnerable to imported energy shocks. That assists sentiment and lowers the energy inflation pressure. Thus, EURUSD might stabilize or even recover in case the market concentrates on less oil and more on the harm of the trade. Nevertheless, the larger structural risk still exists that tariffs will drain growth in European exports.

The chart below shows that the EURUSD has produced a bearish hammer candle at the resistance area as the US dollar index rebounds from the 98 level support. Despite this reversal, the EURUSD remains in consolidation between 1.14 and 1.19. A break of any of these levels will define the next move.

USDCHF – Falling Fear Keeps Pressure on the Pair

USDCHF can be exposed to downward pressure in case geopolitical fears continue to dissipate. The Swiss franc tends to gain when investors retain the desire to have a defensive currency, but they do not wish to be entirely exposed to the U.S. dollar. As long as markets feel that war risk is declining and tariff risk is global, the franc can remain attractive.

Meanwhile, in the event of another shock to the Middle East, USDCHF would not trend cleanly but become more volatile. During such times, the dollar and the franc both can be the beneficiaries of safe haven demand. It usually boils down to the market being more scared of inflation, recession and general geopolitical escalation.

The chart below shows another strong drop during the past week due to the weakness in the US dollar index. As long as the pair remains below the resistance of 0.8080, the possibility of a strong drop is likely.

Impact on Equity Markets

S&P 500 – Ceasefire Relief Supports the Rally

The ceasefire angle pushes the S&P 500 to break record levels. The decrease in oil prices brings down the inflation pressure. That supports sentiment, improves margins and allows investors space to acquire growth and cyclical names once more.

Nevertheless, tariffs are a medium-term risk. By keeping tariff walls in place, the U.S. may increase the price of inputs, decrease the efficiency of supply chains, and pressure corporate profits.

The chart below confirms a strong V-shaped recovery after the 2-week ceasefire between US and Israel. The break above the 7,000 level has opened the door for a strong surge to the 8,000 zone. The immediate support in S&P 500 remains at the 7,000 level.

EURO STOXX 50 – Lower Oil Helps, but Trade Risk Remains

EURO STOXX 50 presents a mixed picture. The lower oil prices benefit Europe as it is energy sensitive. But it is also the direct blow of weaker exports to the United States. Therefore, the EURO STOXX 50 has not broken the record levels on a strong rally after the ceasefire. The index can fall behind the U.S. if tariffs keep hurting industrial production and export earnings.

From technical perspective, the EURO STOXX 50 has found support at 5,500 as discussed earlier. The index is now approaching the record level. A break above 6,200 will indicate strong surge in the index.

Impact on Industrial Commodities

Copper – Supply Tightness Keeps the Bullish Case Alive

Copper remains an area of interest within this story. Despite of 50% tariff on imports from the E.U., the E.U.’s copper and copper products exported to the U.S. increased 15% at the end of 2025. That happened because there was insufficient domestic production capacity in the U.S. to meet the increasing demand. This suggests that growing copper demand is primarily due to legitimate supply needs rather than speculative price action.

In terms of markets, this suggests bullish position for copper compared to other trade sensitive goods. While tariffs may affect where or how copper flows through trade channels they will likely not eliminate fundamental supply shortages. Therefore, while copper demand may be impacted negatively by a decrease in global economic activity, tariffs could also increase cost with respect to copper, ultimately supporting current pricing levels.

From technical perspective, the copper is breaking the ascending channel area this week, which indicates a strong bullish outlook during the next few months.

Aluminium – Supply Disruption Offsets Tariff Pressure

While aluminium also showed an ability to withstand tariffs, exports from the EU to the US rose 9%. The reason for that was mostly temporary as a result of equipment malfunction at one of the US based factories. Therefore structural strength of aluminium has some limitations compared to copper.

But the message remains the same. Trade barriers are unlikely to be the primary factor dictating price trends. Aluminium will likely remain supported by a shortage in domestic production if inventory levels continue to be low despite a negative trading environment.

The chart below shows a strong bullish price action in aluminium after breaking the 2,700 level.

Final Thoughts

Tariffs and war push markets in opposite directions, and both factors apply significant downward pressure on the world economy. Tariffs have already begun to slow trade. They have weakened European-based export-oriented industries and are likely to create long term negative impacts on the rate of overall growth for the global economy.

Simultaneously, the ceasefire story has improved investor sentiment and reduced the near-term pressure from the rising energy prices. That contributed to an improvement in equity performance and a reduction in the likelihood of short term inflationary pressures. This is creating an environment where the surface level of the market appears to be relatively stable. However, there exist considerable underlying economic risks.

For investors, this means the next market movement will be determined by which of these two factors is stronger. If stability in the Middle East continues, then stocks should remain supported, currency pressures are likely to ease and oil prices will likely remain contained.

However, in case of the collapse of the ceasefire again, volatility may soon return. All currencies in that context, including the U.S. dollar, EURUSD, USDCHF, equities, and industrial metals, will respond following the same larger theme: growth pressure on one side and changing risk sentiment on the other.