IMF Working Papers

This paper investigates how the 2025 U.S. trade-policy shocks propagated to global equity valuations. Country-level studies have documented the aggregate costs of tariffs and uncertainty, but firm-level evidence on their joint role after the 2025 shocks remains limited. Filling this gap, we use a firm-level event-study design to disentangle a trade-exposure channel from a sensitivity-to-uncertainty channel. Firms with greater U.S. trade exposure and higher uncertainty sensitivity experienced the sharpest valuation declines following the initial tariff announcement on April 2, but also the strongest rebounds after the announced pause and subsequent trade agreements. Both channels are economically meaningful and of similar magnitude, and jointly account for a substantial share of the market response. Together, they represent about 20 percent of the stock-price decline among tradable firms after April 2 and about 10 percent of the rebound after trade agreements. Overall, the findings show that trade policy affects firms not only through expected tariff costs, but also by reshaping policy predictability in ways that affect firms’ investment incentives.