Geopolitical and Economic Turmoil Impact on the Stock Market

By Marcelina Horrillo Husillos, Journalist and Correspondent at The European Business Review 

What Traders and Investors Can Do to Protect Themselves from Trade Wars’ Risks? 

On Sunday, Trump announced a trade deal with the EU, following discussions with European Commission President Ursula von der Leyen. The just-announced US – EU trade framework imposes 15% tariffs on most EU goods but secures $750 billion in EU energy buys and $600 billion in investments, dodging a 30% levy before August 1.

Some called the framework trade deal between the United States and European Union a “capitulation”, and Prime Minister Francois Bayrou named it a “dark day” for Europe, saying the bloc had caved in to U.S. President Donald Trump with an unbalanced deal that slaps a headline 15% tariff on EU goods while sparing U.S. imports from any immediate European retaliation.

While the EU-US trade deal removes a significant layer of uncertainty from markets, it is perceived as a pre deal just as devil may be in the details.

Also, geopolitical fragmentation accelerated by Trump’s “America First” approach has spurred alternative trade blocs, challenging U.S.-centric economic dominance.

As the world grapples with the aftershocks of Trump’s 2025 diplomatic policies and the Gaza crisis, investors are facing a complex interplay of geopolitical risk and market instability. The U.S. president’s isolationist turns, coupled with the Middle East’s escalating conflicts, has reshaped global trade dynamics, commodity markets, and asset allocation strategies. This article dissects these forces and offers actionable insights for investors navigating this volatile landscape.

Trump Tariff War Global Impact: Unilateralism Over Multilateral Cooperation

President Trump’s 2025 trade policies have prioritized unilateralism over multilateral cooperation, triggering a seismic shift in global trade. The imposition of tariffs—ranging from 10% to 50% on key partners like China, the EU, Canada, and Brazil—has disrupted supply chains and fueled inflationary pressures. The Federal Reserve now attributes 0.8% of annual U.S. inflation to these measures, while global GDP growth projections have been downgraded by 0.3% due to trade uncertainty. Recent US economic news data indicates that the Federal Reserve may soon lower interest rates, yet prices remain elevated and government bond yields can change suddenly. Factors like these contribute to heightened investor uncertainty and could prompt significant shifts in the broader economic landscape.

This realignment challenges the U.S.-centric trade order and raises questions about long-term market access for American firms.

For investors, the implications are twofold. First, the erosion of free-trade norms has increased costs for multinational corporations, particularly in manufacturing and agriculture. Second, the resulting geopolitical fragmentation has accelerated the formation of alternative trade blocs, with China, India, and the EU deepening economic ties. This realignment challenges the U.S.-centric trade order and raises questions about long-term market access for American firms.

Trump’s Middle East Policies and the Gaza Crisis: Regional and Global Uncertainty

Trump’s controversial Middle East strategies—ranging from the “Riviera of the Middle East” plan to calls for “finishing the job” against Hamas—have further inflamed regional tensions. Arab states like Egypt and Jordan have distanced themselves from the U.S., while Gulf Cooperation Council (GCC) stock markets have become increasingly sensitive to geopolitical risk. Studies show that GCC market volatility is now driven 60% by geopolitical risk (GPR) shocks, compared to 30% by oil price fluctuations.

The humanitarian crisis in Gaza—where 25% of the population faces famine-like conditions—has also sparked a reevaluation of ESG investing. While safe-haven assets like gold (up 45% in 2024–2025) have gained traction, ESG funds with Middle East exposure face divestment risks. Investors must balance ethical considerations with market realities, favoring firms with robust supply chain ethics frameworks.

The Gaza crisis has compounded global market instability, with energy and agricultural sectors bearing the brunt. Houthi attacks on Red Sea shipping lanes have forced vessels to reroute around the Cape of Good Hope, adding 7,000 nautical miles to transit times and inflating shipping costs. This has driven Brent crude prices to $85/barrel in Q2 2025—a 18% surge from early 2024—and exacerbated supply chain bottlenecks.

Agricultural markets have also been destabilized. Southern Israel’s damaged infrastructure and Gaza’s food insecurity have pushed wheat and barley futures up 12% year-to-date. Emerging markets, particularly India and China, face heightened import costs, compounding inflationary pressures in a world already reeling from Trump’s tariffs.

Strategies for Investors During Trade Wars

Trade Wars anticipate a swift in market and business trends, investors and traders don’t need to fear or hide its consequences, but they need to find ways to navigate across these changeable times. There is a long list of strategies that can be considered according each case:

• Build an emergency fund

An emergency fund is crucial for financial health, as it prevents you from going into debt when unexpected expenses arise. The popular wisdom is that you should have six months’ of expenses saved, but even a couple thousand dollars is a good start and can prevent headaches down the line.

• Reduce debt and expenses

According to LendingTree, the average interest rate for a credit card in the U.S. is 24.2%. If you are carrying a balance on any of your credit cards, now is the time to put a plan in place for paying off those debts. During a recession, paying down debt and reducing expenses is essential. If you don’t already have a budget and a spending tracker, now is an excellent time to put these measures in place.

• Monitor Policy Trends and Global News 

Staying informed is more than just watching the headlines. Follow high-quality stock market news sources that break down policy developments and expertly analyse how proposed tariffs or trade agreements might affect key sectors. Tools like economic calendars, analyst commentary, and investor briefings can also help you anticipate market moves.

• Focus on Defensive and Resilient Sectors

Healthcare, utilities, and consumer staples often remain stable because they meet essential, ongoing needs regardless of global tensions.

Certain industries are more insulated from trade disruption. Healthcare, utilities, and consumer staples often remain stable because they meet essential, ongoing needs regardless of global tensions. In the meantime, make sure you have exposure to assets like stocks and bonds, and commodities like gold, which has been a strong player in these last few years of economic volatility.

• Adjust your investment strategy

Too much exposure to the stock market could mean significant losses, a thing you especially want to avoid if you’re nearing retirement. Even in times of economic prosperity, retirees should look to trade in the bulk of their stock options for safer investments such as bonds, high-yield savings accounts and inflation-protected securities.

• Explore International and Emerging Market Exposure

While U.S.-based investors often default to domestic equities, consider exposure to emerging markets or developed economies that may benefit from trade realignments. ETFs and mutual funds focused on global diversification can reduce reliance on any single economy.

• Use the Best Investing Tools 

Navigating uncertainty isn’t a solo sport. A trusted investing tool that can offer lightning-fast insights based on your personal risk tolerance, goals, and time horizon – saving you both time and money in the long run.

• Keep a Long-Term Perspective

Knee-jerk reactions to market turbulence rarely end well. Focus on your long-term goals and avoid panic selling. History shows that markets tend to recover over time, even after geopolitical shocks.

Conclusion

Trade wars generate short-term chaos and long-term structural shifts. While they introduce volatility and uncertainty, they also create inflection points that can redefine industries. The key isn’t just to react, it’s to anticipate: monitor policy signals, follow supply chain movements, and identify which regions or sectors stand to gain from the fallout.

In fact, volatile periods can be an opportunity, if approached with a clear, long-term strategy.

For investors, the goal isn’t to avoid exposure to affected stocks or industries altogether, but to understand where the risks lie and how long-term trends might evolve. By keeping a close eye on trade policy developments, sectoral impact, and real-time supply chain responses, investors can position themselves not just to weather the turbulence—but to capitalize on the structural shifts that follow. In uncertain times, informed positioning is the sharpest edge.