Due to Tariff Fears, Emerging Markets Funds Have Had Their Worst Session Since March 2020

The iShares MSCI Emerging Markets ETF suffered its steepest decline since the early days of the pandemic, dropping sharply on Friday amid growing concerns about a full-blown global trade war. The selloff was triggered by former President Donald Trump’s newly announced retaliatory tariffs, which sparked fears of a worldwide economic slowdown and potential recession.

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The ETF, which tracks stocks in developing countries, closed Friday down by 5.56%, marking its worst single-day performance since March 2020. For the week, the fund declined by a total of 7.29%, erasing earlier gains and pushing its year-to-date performance into negative territory — now nearly 3% lower for 2025.

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Emerging market economies are particularly vulnerable to shifts in global trade dynamics, as many of them are deeply integrated into international supply chains and rely heavily on exports to drive economic growth.

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According to World Bank data, exports made up 44% of South Korea’s gross domestic product in 2023, while India and China also had sizable export shares of 21.8% and 19.7%, respectively. These figures highlight the crucial role that international trade plays in sustaining growth in these regions.

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The impact of Trump’s tariffs is already being felt in the composition of the iShares ETF. The top ten holdings in the fund — which make up more than a quarter (26.4%) of the total portfolio — are all companies based in Taiwan, China, India, or South Korea. These countries are among the most directly affected by the trade measures. Taiwan now faces a hefty 32% tariff rate on its exports to the U.S., while South Korea and India are being hit with 25% and 26% rates, respectively.

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China, in particular, is bearing the brunt of these escalating tensions. It currently faces a cumulative tariff rate of 54% on its exports to the United States. In response to Washington’s actions, Beijing announced Friday that it would begin imposing a 34% tariff on all U.S. imports, effective April 10. Earlier in the week, China also revealed that it was engaging in trilateral talks with Japan and South Korea to coordinate a regional strategy in response to the growing trade standoff.

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These retaliatory measures have only heightened market anxiety, as investors fear that the situation could deteriorate further. Trade tensions, if prolonged, could damage economic activity not only in Asia but across other developing markets that depend on trade to support job growth and capital investment.

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Torsten Slok, chief economist at Apollo Global Management, weighed in on the implications of a drawn-out trade conflict during a Friday investor call. He warned that the global economy — particularly emerging markets — would feel the brunt of the pain if these trade barriers remain in place over the long term. “If a trade war now is beginning, and if terms stay in place for an extended period and for many years, this is going to have more negative implications on the rest of the world than it will on the U.S.,” Slok said.

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He pointed out that the reason lies in how dependent many countries outside the United States are on cross-border commerce. “Simply because exports and imports as a share of GDP is much more substantial in the rest of the world than it is in the U.S.,” he added. In short, while the U.S. economy may have some buffer due to its large domestic consumer base and more limited exposure to trade as a share of GDP, emerging markets do not have the same luxury.

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The sharp drop in the iShares MSCI Emerging Markets ETF underscores the fragility of global investor sentiment when trade tensions escalate. With China and other Asian economies retaliating and global supply chains potentially disrupted, investors are becoming increasingly cautious about putting money into markets that are vulnerable to further political and economic shocks.

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The coming weeks will likely be critical, as investors await any signs of de-escalation or new diplomatic efforts that could avert a deeper crisis. But for now, the fear of a sustained trade war continues to weigh heavily on emerging markets, with ETFs like iShares MSCI Emerging Markets serving as a bellwether for global investor unease.

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