A glossary to help understand the crisis sparked by Trump

Since the announcement of a dramatic increase in tariffs on Wednesday, April 2, imposed on all products imported from many countries into the United States, the economic world has been on edge, rocked by fluctuations in global stock exchanges. Here is our glossary to help you understand the economic and stock market terms that have increasingly appeared in the news.

Balance of payments

The balance of payments records all of a country’s economic transactions with the rest of the world. It is presented as an accounting document and is divided up into several accounts, including the financial account and the current account. The current account covers trade in goods and services, income and currency transfers, while the financial account traces investment and capital flows.

Part of the current account, the balance on goods, also known as the trade balance, measures the difference between exports and imports of tangible goods (manufactured products, raw materials, etc.). A deficit in the trade balance, as has been the case for the US since the 1970s, indicates that the country imports more goods than it exports. In 2024, this trade deficit reached a record level of $918 billion (€829 billion).

According to Donald Trump, this is because other countries “rip off” the US. This is how he has justified the implementation of exorbitant tariffs to restore the US trade balance and protect the American industrial sector from foreign competition.

Capitulation

When stock prices drop significantly, investors liquidate their positions, hurriedly selling off their stocks in massive quantities to limit their losses. In the cycle of emotions that governs the psychology of stock markets, this phase is called capitulation. It follows panics and precedes economic depressions. It often leads to a market bottom, which is considered to be the lowest point a market can reach and the beginning of a new upward-moving trend.

After Trump’s abrupt announcement of the spectacular swath of US tariff hikes and the fall of global stock exchanges on Friday, April 4, and Monday, April 7, many observers hoped markets had reached the point of capitulation, which would signal a potential rebound thereafter. This occurred on Tuesday, April 8, after the announcement of tariff discussions between Japan and the US, but there are no certainties about the future: Nothing says the markets could not collapse further.

Futures contract

A futures contract, or, simply, “futures,” is a legally binding agreement to buy or sell an asset (a commodity, currency, financial instrument, etc.) at a predetermined price for delivery at a specific future date. It is a key tool for managing the risks associated with global market volatility and a prized financial instrument for anticipating future stock market trends: The price at which a futures contract is traded reflects investors’ expectations about an asset’s future value.

For example, for a wheat farmer, the harvest occurs in summer, but sales happen in the fall. If the price of wheat sits at, for example, $1,200 per metric ton, the farmer can choose to sell now at the current price, via a futures contract, if they fear the price will drop in the following months.

On Wednesday, April 9, before the market opened on the day the new tariffs went into effect, futures contracts on major stock indices fell, according to CNBC: Those tied to the Dow Jones Industrial Average dropped by 0.74%, the Nasdaq-100 by 0.88% and the S&P 500 by 0.89%. This indicated that investors expected a day of stock market decline.

External debt

External debt refers to all of the loans a country contracts with foreign creditors, whether they are countries, institutions or private investors. In the US, this debt has reached historic levels – $36 trillion – fueled by chronic budget deficits. Moreover, the dollar, with its status as a global reserve currency, attracts capital but thereby also contributes to its overvaluation, thus increasing the US trade deficit.

In this context, Trump has bet on a two-pronged strategy to bring down the cost of the debt, at a time when $9.2 trillion must be refinanced in 2025. On one hand, he wants to cut public spending, and on the other, he has raised tariffs to restore the trade balance and encourage a decrease in interest rates. These tariffs are, therefore, both an economic lever and a tool for negotiating with foreign partners, aiming to preserve creditors’ confidence all while limiting the exploding debt burden.

Tariffs

Tariffs are a fiscal levy (a tax) imposed on goods entering a country’s territory from abroad. The way such taxes are calculated can be based on the value of imported goods or services (known as an ad valorem tax), their weight or any other unit of measurement (a bushel, barrel, etc.).

The end of World War II marked a break from the doctrine of protectionism that had prevailed since the 1930s. From the General Agreement on Tariffs and Trade (GATT), in 1947, to the founding of the World Trade Organization, in 1995, measures aimed at facilitating international trade and promoting free trade has been implemented, and as a result tariffs have continuously decreased until the early 2020s.

With its policy of “reciprocal tariffs” imposed on the rest of the world, the Trump administration has chosen to embrace protectionism, ending more than half a century of US economic openness.

This sudden policy shift has already shaken up stock exchanges and risks destabilizing the global economic order.

Inflation

Inflation is a common economic phenomenon characterized by rising consumer goods prices and currency depreciation. While Trump had boasted of being able to contain inflation during his campaign, the tariff hikes “are likely to raise inflation in coming quarters,” predicted Jerome Powell, chairman of the Federal Reserve (the US central bank). Indeed, the new tariffs will systematically increase the cost of raw materials or imported machine parts on the American market. Allianz Research estimated, in a recent report, that “two-thirds of the rise in import costs will be passed on to the consumer,” highlighting a risk that the US inflation rate will peak at 4.3% in the summer of 2025.

The European Union’s response to Trump’s tariffs, which it had planned but has since put on pause, “to give negotiations a chance” according to EU Commission President Ursula von der Leyen, had also featured a possible increase in tariffs on American products. This could generate inflation in Europe, though to a lesser extent.

On the other hand, in export markets that are heavily dependent on American orders, there would be more of a risk of deflation: The overall demand for European products could decrease, causing price contractions. Yet this phenomenon “will remain limited,” said economist Vincent Vicard, in an interview with the magazine Alternatives Économiques.

‘Black Monday’

The expression “Black Monday” refers to the October 19, 1987 stock market crash, when the Dow Jones index of the New York Stock Exchange recorded a historic 22.6% drop in a single trading session. It echoes “Black Thursday,” on October 24, 1929, which marked the beginning of the Great Depression in the US.

This term resurfaces regularly during moments of significant turbulence in financial markets. It has been particularly widely used in the media over these past few days in the context of the trade war sparked by Trump, whose tariff announcements have caused significant waves of concern among investors, leading to marked declines in both Paris’s CAC 40 stock market index and the S&P 500, its American equivalent.

‘Bull’ and ‘Bear’ markets

Markets alternate between troughs and peaks, like a roller coaster. On one side, a “bull” market, allegedly named in reference to the way bulls raise their horns upward, is characterized by a period of rising prices, confidence and optimism among investors.

Conversely, there are two types of market declines: corrections and “bear” markets. The first, which can affect targeted securities or broader markets, constitutes a sudden break in an upward trend and can vary between a 10% and 20% drop in value compared to a previous peak. When the drop exceeds 20%, it is called a bear market.

Trump’s tariff announcements caused shockwaves throughout the world’s stock markets, threatening the start of a “bearish” trend: Between its last peak, on February 19, and its closing price on Monday night, the S&P 500, the benchmark American stock index, plummeted 17.61%, approaching dangerously close to the symbolic 20% mark.

Protectionism

Protectionism, sometimes described as “economic nationalism,” is a doctrine aimed at reducing the scale of foreign competition and protecting domestic production of goods. It relies on three types of instruments: tariffs, non-tariff trade barriers (rules of origin, import licenses, etc.) and quantitative restrictions (import quotas).

This interventionist policy has abruptly resurfaced under Trump’s presidency, as his goal is to restore the US trade balance. During his first term, he already implemented several protectionist measures, such as particularly high tariffs on products imported from China. This shift, which is part of a long-standing Republican tradition, was previously seen in the 1930s, during the Great Depression, with the adoption of the Smoot-Hawley Tariff Act that increased import tariffs on more than 20,000 types of goods. It has continued to expand during Trump’s second term. The president has imposed a minimum 10% tariff rate, effective April 6, on all products imported to the US, with different surcharges depending on the goods’ country of origin.

This approach reflects a fragmented view of global trade: that of economies operating in silos and only occasionally exchange goods. This logic breaks with the 21^st-century global economy, which is structured around global value chains, through which a product can be designed, assembled and distributed across several countries. Erecting trade barriers disrupts these complex networks and risks economic retaliation, potentially leading to genuine trade wars.

Recession

Recession, which should not be confused with degrowth, refers to a period characterized by a significant decline in economic activity. Its exact definition varies from country to country. In France, the national statistics institute (INSEE) describes a recession as any period lasting anywhere from two consecutive quarters of GDP contraction. In the US, the National Bureau of Economic Research defines it more broadly as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales.”

On April 8, the bank JP Morgan bet on the US entering into a recession in 2025, following Trump’s announcement of widespread tariff increases, which, for economists, are synonymous with inflation and slowing growth.

Stagflation

After a double-digit growth period around the years from 1945 to 1975, Western economies were hit, from the 1970s onward, by slowing growth and rising prices. This was dubbed “stagflation” by British conservative politician Iain Macleod, and he described it as the “worst of both worlds.”

Since the first oil shock, in 1973, the concept has been embraced by economists, who have explained the phenomenon by public policies supporting demand, which artificially drove up prices amid a context of sluggish growth. Moreover, this configuration led to a vicious cycle: Inflation reduces people’s ability to save money and restrains investment capabilities, which are therefore no longer sufficient to revive economic activity and improve purchasing power.

However, other levers can also artificially drive up prices and fuel inflation. This is the case with tariffs, the cost of which is directly passed on to consumers. While not all economists agree on the consequences of the current situation, stagflation is considered to be one of the possible outcomes. Politically, it would be the worst for Trump, who was mainly elected on his promise to combat Biden-era inflation.

Safe haven assets

During turbulent times in financial markets, as is currently the case, investors turn to so-called “safe haven assets”: stable assets, with a reputation for being reliable, which often allow for resale profits to be obtained. Gold, which sells for around $3,000 an ounce (31.1 grams), remains the most iconic safe haven asset.

Yet other assets also play this kind of protective role. This is the case with bonds, a debt security through which a borrower (a company or a country) agrees to repay an amount with interest at a set future date. Some publicly traded companies’ stocks can also serve as safe haven assets, particularly those whose business largely depends on public-sector orders. The French electric utility company Engie is an example: In one month, its stock rose by 4.36%, while the CAC 40 recorded an 11.34% decline.

VIX Index

In the stock market world, it is nicknamed the “fear index.” The VIX, or CBOE Volatility Index, measures the average variation of call and put options on the S&P 500, the 500 major Wall Street stocks.

A high VIX value is a sign of financial market panic and investor fears. Since it was introduced in 1986, this symbol of algorithmic trading has soared during crisis periods, such as around 9/11, during the 2008 subprime mortgage crisis and with the Covid-19 pandemic. It notably exceeded a threshold value of 70 five times in 2008, and just as many in 2020, with a historic peak at 82.69 on March 16, 2020. Meanwhile, on its calmest days, the index lies between 10 and 20. On April 7, following the bombshell announcement of the global increase in US tariffs, the VIX index exceeded the 40 threshold for the first time since the Covid crisis.