Trade Policy and Market Sentiment: Global Asymmetries in Response to U.S. Tariffs Announcements

Abstract

This paper examines the global equity market response to U.S. tariff revisions announced on July 31, 2025 and implemented on August 7, 2025 under Executive Order 14326. Using an event-study framework across 37 countries, this study employs Cumulative Abnormal Returns (CAR) and Variance Ratios (VR) over three event windows (?1,+1), (?3,+3), and (?5,+5), with expected returns estimated via a mean-adjusted model over an 80-day pre-event window. Cross-sectional regressions further identify determinants of market reactions. Results reveal pronounced cross-country asymmetries. Advanced economies recorded consistently negative CAARs alongside VRs below unity, indicating orderly downward repricing consistent with market efficiency. Emerging and developing economies exhibited heterogeneous CARs and VRs substantially above one, reflecting elevated speculation and informational asymmetries. Cross-sectional regression results show that market development status, proxied by an advanced economy dummy, is the primary and statistically significant determinant of both abnormal returns and event-induced volatility, while tariff magnitude and trade openness yield no significant explanatory power. These findings indicate that the 2025 U.S. tariff revision constituted a global financial shock whose transmission was governed less by trade exposure than by the structural depth and institutional quality of receiving markets.   Keywords: US-Tariffs, Stock Market, Trade Policy, Uncertainty, Event Study