FSB Warns of Market Volatility amid US-China Trade Tensions

Global financial markets are facing heightened volatility as the Financial Stability Board (FSB) issues a cautionary note on inflated asset valuations, coinciding with escalating trade tensions between the United States and China.

On October 8, 2025, Andrew Bailey, Chair of the FSB, addressed a letter to G20 finance ministers and central bank governors, expressing concerns over the recent surge in global asset prices. Bailey highlighted that these valuations might be misaligned with prevailing economic and geopolitical uncertainties, potentially exposing markets to a disorderly adjustment. He emphasized the necessity of multilateral cooperation among G20 nations to avert crises and promote sustainable economic growth. Bailey stated, "While most jurisdictions have seen a rebound in financial markets in recent months, valuations could now be at odds with the uncertain economic and geopolitical outlook, leaving markets susceptible to a disorderly adjustment."

Shortly thereafter, on October 10, 2025, U.S. President Donald Trump announced plans to impose an additional 100% tariff on all Chinese imports, effective November 1, 2025. This move was in response to China's recent implementation of export controls on rare earth elements, critical materials used in various high-tech industries. In a post on Truth Social, Trump described China's actions as an "extraordinarily aggressive position on trade," stating that China had sent an "extremely hostile letter to the world" announcing large-scale export controls starting on November 1 on virtually every product they manufacture, including some not made by them.

The announcement led to significant declines in U.S. stock markets. The SPDR S&P 500 ETF Trust (SPY) closed at $663.04, reflecting a decrease of 1.5% from the previous close. Similarly, the iShares China Large-Cap ETF (FXI) closed at $39.53, down 3.1%.

The current situation mirrors previous trade tensions between the U.S. and China, notably during Trump's first term when tariffs were imposed on Chinese goods, leading to retaliatory measures and market volatility. However, the scale of the proposed 100% tariffs is unprecedented and could have more profound implications for global trade and financial stability.

The FSB's caution underscores the importance of coordinated international efforts to address financial vulnerabilities and maintain market stability amid ongoing global challenges. As markets react to these developments, the call for multilateral cooperation to maintain stability has become increasingly urgent.