The Impact of Trump-Era Tariffs on Financial Market Efficiency

TL;DR

The paper addresses how Trump-era tariffs affected financial market efficiency amid the COVID-19 shock, using multifractal detrended fluctuation analysis (MFDFA) on return and absolute-return series for six assets. It computes the generalized Hurst exponent $h(q)$ and multifractal strength $\Delta h(q)$ in rolling three-year windows to track temporal changes in market structure. Key findings show COVID-19 induced substantial changes in $h(2)$ and $\Delta h(5)$ for several assets, while tariffs produced more modest but detectable effects; the SSEC largely remained insulated and the VIX displayed anti-persistent dynamics with $h(2)<0.5$. The results illustrate the utility of multifractal analysis for capturing shifts in market efficiency under geopolitical and health shocks and provide a comparative lens on external shocks versus domestic policy.

Abstract

This study examines the effects of Trump-era tariffs on financial market efficiency by applying multifractal detrended fluctuation analysis to the return and absolute return time series of six major financial assets: the S\&P 500, SSEC, VIX, BTC/USD, EUR/USD, and Gold. Using the Hurst exponent $h(2)$ and multifractal strength, we assess how market dynamics responded to two major global shocks: the COVID-19 pandemic and the implementation of the Trump tariff policy in 2025. The results show that COVID-19 induced substantial changes in both the Hurst exponent and multifractal strength, particularly for the S\&P 500, BTC/USD, EUR/USD, and Gold. In contrast, the effects of the Trump tariffs were more moderate but still observable across all examined time series. The Chinese market index (SSEC) remained largely unaffected by either event, apart from a distinct response to domestic stimulus measures. In addition, the VIX exhibited anti-persistent behavior with $h(2) < 0.5$, consistent with the rough volatility framework. These findings underscore the usefulness of multifractal analysis in capturing structural shifts in market efficiency under geopolitical and systemic shocks.

Figures (12)

• Figure 1: Time series of price, return, and absolute return for the S&P 500.
• Figure 2: Time series of price, return, and absolute return for the SSEC.
• Figure 3: Time series of price, return, and absolute return for the VIX.
• Figure 4: Time evolution of the Hurst exponent $h(2)$ for asset returns. Top: S&P 500; middle: SSEC; bottom: VIX. Red line: World Health Organization's declaration of the COVID-19 pandemic (March 11, 2020); blue line: Chinese government's announcement of a comprehensive economic stimulus package (September 24, 2024); green line: implementation of Trump-era tariffs (April 2, 2025).
• Figure 5: Time evolution of the Hurst exponent $h(2)$ for asset returns. Top: BTC/USD; middle: EUR/USD; bottom: Gold. The colored lines indicate the same events as in Figure \ref{['fig:figure1']}.