Summers warns US tariff policy risks triggering financial crisis

Former U.S. Treasury Secretary Lawrence Summers has issued a stark warning about the potential for a self-inflicted financial crisis due to escalating tariffs and trade policies.

His comments came as financial markets experienced turbulence following President Donald Trump’s announcement of a 125% tariff on Chinese imports, alongside reduced tariffs for other nations.

Summers, in a series of posts on social media platform X, described the situation as a “serious financial crisis wholly induced by U.S. government tariff policy.”

He pointed to rising long-term interest rates and declining equity markets as indicators of economic instability.

“We are being treated by global financial markets like a problematic emerging market,” Summers stated, comparing the current dynamics to those seen in emerging market collapses.

The former Treasury chief emphasised that the root cause of this instability lies in Washington’s decisions rather than external shocks.

He warned that such policies could create “vicious spirals” due to the U.S.’s reliance on foreign debt purchasers and its growing deficits.

Summers criticised the administration’s approach, calling it “reckless improvisation” and likening it to policies seen in economically unstable nations.

Trump defended the tariffs as a response to alleged Chinese trade abuses but also announced a 90-day pause and reduced tariffs for over 75 countries engaged in negotiations with the U.S.

Despite this adjustment, Summers argued that the administration’s actions have already undermined global confidence and could cost middle-class families an estimated $2,000 annually.

Market reactions have been severe.

The S&P 500 dropped to its lowest level in nearly a year, while global markets saw significant sell-offs.

Hedge funds have reportedly offloaded large portions of their stock holdings amid fears of further volatility.

“Much credibility has been lost. Be afraid,” Summers concluded his critique by urging caution.