Globalization at a Turning Point: Trump's Tariffs, Financial Market Impacts, and the Re-Evaluation of Fukuyama's "End of History"

Francis Fukuyama's "End of History" thesis, predicting the triumph of liberal democracy and free-market capitalism after the Cold War, faces challenges from recent events, particularly the trade policies of Donald Trump's presidency. Characterized by tariffs and protectionism, these policies have cast doubt on the future of globalization. Trump's tariffs have disrupted established trade patterns and injected significant uncertainty into financial markets. Our research reveals a substantial impact across nearly all asset classes, with trade-related shocks explaining a significant portion of market volatility. These shocks operate by shifting investor expectations about economic growth and increasing perceived risk. Companies who are heavily reliant on exports to target markets have been particularly vulnerable to these financial disruptions, experiencing heightened volatility. The implementation of tariffs also coincided with rising inflation concerns, leading to potential market reactions like increased bond yields. Historically, trade disruptions have been linked to financial crises. Trump's tariffs, by influencing inflation and creating trade instability, have contributed to market volatility. The research utilizes daily data on key financial variables and macroeconomic announcements, employing a Vector Autoregression (VAR) model to analyze the effects. The findings reveal significant market volatility and sector vulnerability due to trade-related shocks, which alter investor expectations and increase perceived risks. The implementation of tariffs has also been linked to rising inflation concerns, influencing market reactions such as increased bond yields. Historical parallels are drawn to previous financial crises, emphasizing the potential for tariffs to contribute to financial instability. The study underscores the sensitivity of global financial markets to trade policy shifts and highlights the broader economic implications of protectionist policies. These results provide empirical evidence that contemporary trade policies can disrupt financial stability, challenging the assumed trajectory of globalization and the stability promised by liberal democratic governance.