We are entering a new phase: power is shifting, the balance is shifting, and something invisible could knock out the markets.
China has decided to limit exports of rare earth elements (REEs), materials essential for the production of semiconductors, batteries, and advanced technologies. This is a strategic, rather than tactical, measure, because rare earths are more than just raw materials: they are at the heart of the digital economy and the energy transition. The United States, under President Donald Trump, responded with a 100% import duty on certain Chinese goods.
This measure, more symbolic than substantive, is intended to reinforce the "America First" political narrative, but it risks severely impacting American industry, especially in the automotive and tech sectors, where dependence on Chinese supply chains remains significant.
At first glance, it might seem like a balanced battle, a zero-sum game. In reality, this is an unstable balance: both powers are attacking each other, but they are doing so in profoundly different institutional contexts. And this, in market terms, is a sign of asymmetric risk.
The Negotiation Trap
Behind the surface of this trade war lies a structural problem: mutual dependence. China needs American semiconductors and Western technologies to fuel its industrial development, but at the same time, the United States depends on Chinese critical raw materials to produce them. It is a relationship of necessity, not choice. Every action by one side generates a reaction in the other, creating a dynamic of constant tension that the markets perceive as systemic uncertainty.
China’s move on rare earths has shifted the strategic initiative eastward. Trump thus faces two options, both costly. On the one hand, he can persist with tariffs, increasing pressure on domestic inflation; On the other hand, he can seek a diplomatic compromise, but at the cost of losing political credibility.
In both scenarios, the American equilibrium is shaky.
This situation is a perfect example of what economists call the "negotiation trap": a condition in which every decision, even the most rational, produces unintended consequences. This mechanism often precedes periods of sell-off, as investors begin to price in not only economic data, but the unpredictability of political choices.
The invisible factor: the limits of presidential power
There is also a less visible but crucial aspect. The US Supreme Court is evaluating the constitutional limits of presidential power in matters of tariffs and trade policy. If it were to rule that the president cannot act unilaterally, Trump would face an unprecedented institutional constraint. In a context like the current one, this would mean a reduction in maneuverability just when economic policy requires rapid and coordinated decisions.
China, on the other hand, has no such constraints. Its decisions are made centrally and can be executed without the filter of a system of checks and balances. This gives it a strategic advantage: it can react coherently and gradually, maintaining a stable economic policy.
This difference in political structure is directly reflected in the markets. Investors are reacting not only to the trade war, but to the different degrees of institutional stability between the two powers. In a globalized world, political predictability is a financial variable: whoever loses it also loses economic credibility.
Why the sell-off is widespread
The market decline is no longer limited to technology stocks. political uncertainty has a contagious effect: it also extends to cyclical and traditionally defensive sectors. Even sectors like utilities and healthcare, usually a safe haven during times of instability, are starting to show weakness.
This is happening because trade tensions are not only affecting corporate profits, but also overall confidence in the system. Companies are slowing down investments, margins are shrinking, and investors are starting to shift capital toward assets considered safer.
This is where gold comes in.
Gold is not a "speculative" investment in the strict sense, but a form of systemic protection. When uncertainty grows, be it geopolitical, financial, or institutional, the precious metal tends to strengthen. Its strength comes from the fact that it is not dependent on a central bank, monetary policy, or sovereign debt. It is a real asset, recognized globally as a store of value.
In recent months, gold’s behavior has demonstrated a significant characteristic: it tends to rise when markets fall, but does not lose value when markets rebound. This is a sign that investors are seeking strategic, not temporary, hedging. They are pricing in the risk that political tensions will become structural.
The market impact may not be immediate
Talking about a "market knockout" doesn’t necessarily mean expecting a sudden collapse. Rather, the danger is a progressive weakening, a gradual loss of confidence that translates into reduced volumes, increasing volatility, and a general climate of risk aversion.
Today, the effect of tariffs is more psychological than real. Companies have not yet revised their earnings guidance, and many analysts continue to forecast moderate growth for the coming quarters. However, investor expectations are a powerful driver: all it takes is a wavering confidence for for capital flows to shift rapidly. And in modern markets, where algorithmic trading amplifies every movement, the risk of a domino effect is ever-present.
Uncertainty is the variable most feared by markets because it cannot be measured or predicted. It is an information vacuum that paralyzes decisions and pushes traders to move into cash or in instruments perceived as safe. And the longer it lasts, the greater the likelihood of a sudden and broad correction.
A clear message
The potential collapse of the markets should not be interpreted as a prophecy of doom, but as a warning. The global equilibrium is fragile, and US economic policy is stagnating: any forceful move risks backfiring.
The rational investor must understand that the risk today is not just economic, but institutional. Trade wars are not won with tariffs, but with stability and credibility.
Original article published on Money.it Italy 2025-10-14 07:51:00. Original title: Questo fattore potrebbe mettere KO i mercati azionari
