• The fact prices in the bond market are in decline at the same time as the stock market suggests there may be a liquidity crisis in the financial sector happening at the same time as the trade tariff crisis. Both phenomena could be on the scale of the 2008 financial crisis, if President Trump does not change course. Some investment managers are calling for intervention by the U.S. Federal Reserve.

You can forgive yourself if, before today, you had never heard of “the basis trade.” You had no reason to.

But we might be about to learn a whole lot about basis trades in the same way that we had to suddenly learn about “credit default swaps” and “mortgage-backed securities” during the Great Financial Crisis of 2008.

Because this moment—with President Trump’s tariff program threatening to push the planet into a recession, as stocks and bonds fall—feels just as dangerous as August 3, 2007, when Jim Cramer suddenly began screaming on CNBC that the U.S. Federal Reserve had to “open the discount window” (meaning be more generous to large banks that were in trouble) because former Fed Chairman Ben Bernanke had “no idea how bad it is out there!” 

That was the moment that presaged the 2008 crisis. The S&P dropped 50% of its value over the next two years as, slowly at first and then with increasing alarm, everyone realized the economy had taken on way more mortgage debt than could ever be paid off.

On Tuesday, the S&P 500 collapsed to under 5,000—around 18% below its all-time high of 6,144 in February. 

Usually, when stocks go down, investors flee to the safety of bonds, and bonds go up. 

But bonds were also going down. The yield on the 10-year Treasury rose from 3.9% and briefly hit 4.51%. (Remember: If yields are going up, it means bond prices are going down). 

This was unusual

Scarily, mysteriously unusual. It meant there was nowhere “safe” for money to hide.

Then, also on Tuesday, Torsten Sløk, the chief economist of Apollo Management, published a fantastically helpful note explaining the likely problem in the bond market: “The basis trade.”

It turns out that since the Great Financial Crisis of 2008, hedge funds have been placing bets with up to 100 times leverage on the price difference between Treasuries and Treasury futures contracts. In the bet, to put it simply, you buy the Treasury bond and then short the differently priced futures contract on a similar bond. As the bond comes up on its expiry date, the prices converge. The futures price comes down, and your short bet pays off.

The price differences are small, and that is why hedge funds use 100 times leverage to make money on them.

“How big is the basis trade?” Sløk asked. “It is currently around $800 billion and an important part of the $2 trillion outstanding in prime brokerage balances.”

The liquidity problem

The only problem with leverage, of course, is that you have to pay it back.

And what the bond market—with its falling prices—seemed to be signalling was that there was a liquidity problem among hedge funds and banks that were scrambling to exit the basis trade in order to raise and hold cash.

When there is a liquidity problem on that scale, you’ve potentially got systemic, institutional issues. Ark Invest’s Cathie Wood posted on X, albeit in reference to a different aspect of the bond market, there were “serious liquidity issues in the US banking system.” 

“This crisis is calling out for … serious support from the Fed,” she said.

She’s not the only one who is worried. 

Jefferies’ chief U.S. economist, Thomas Simons, published a note to clients Wednesday morning titled, “We Could See Fed Intervention Soon.”

Nick Lawson, chief executive of investment group Ocean Wall, told the Financial Times, “As things spiral, they’re [the hedge funds] being forced to sell anything they can — even good assets — just to stay afloat … if the Federal Reserve doesn’t step in soon, this could turn into a full-blown crisis. It’s that serious.”

This sounds a lot like 2008

That is why it is so scary.

But this time, it is potentially worse than 2008. 

The trigger of this crisis is not merely a couple of hedge funds making some bad bets on Treasuries. It’s President Trump’s trade tariffs. The White House has all but called a halt to any international trade with America—and the stock market is reacting negatively as a result. 

To put the scale of what Trump is doing in perspective: Trump’s tariffs might spell the end of Apple’s iPhone for American consumers. The tariffs on China mean the price of a new iPhone could rise to $3,500, according to Wedbush analyst Daniel Ives. That price assumes Apple could make an iPhone inside the U.S., thus avoiding the China tariff. But that’s impossible, Ives says, because it takes years to build the kind of semiconductor fabrication factories needed for a smartphone. And even if you could do it, the phones would be too expensive for anyone but the very rich. “The reality of a $1,000 iPhone being one of the best made consumer products on the planet would disappear,” Ives says.

Goldman Sachs sent their clients a note on Wednesday that says, “The implied growth downgrade on April 3 and 4 [from the tariffs] exceeded anything seen outside the initial COVID shock, one episode in the GFC, and Black Monday in 1987,” analysts Dominic Wilson and Vickie Chang wrote.

With those prospects, it is not surprising that stocks are selling off. The tariffs will simply prevent many companies from being in the business they are in.

Back in February—it feels like a lifetime ago but it was just a few weeks!—all the chatter was about the “soft landing” the U.S. Federal Reserve seemed to have engineered for the U.S. economy. The American economy had hit a few bumps last year, but it was fundamentally sound. Stocks were anticipating good times ahead. Even the recent job numbers for March looked good.

All that has now gone

Of course, there is a cure for this. Trump can reverse his trade policy. But he is not known for backing down or admitting he may have made a mistake. Alternatively, Congress could step in and pass a bill taking back control of tariff policy.

Absent those two conditions, we may now have not one but two 2008-scale crises at the same time, both feeding each other: The crisis among companies who suddenly cannot trade; and a crisis in the financial sector, which suddenly can’t locate enough cash to stay liquid.

This story was originally featured on Fortune.com

Amazon.com Inc. has canceled orders for multiple products made in China and other Asian countries, according to a document reviewed by Bloomberg and people familiar with the matter, suggesting the company is reducing its exposure to tariffs imposed by President Donald Trump.

The orders for beach chairs, scooters, air conditioners and other merchandise from multiple Amazon vendors were halted after Trump’s April 2 announcement that he planned to levy tariffs on more than 180 countries and territories, including China, Vietnam and Thailand, the people said. The timing of the cancellations, which had no warning, led the vendors to suspect it was a response to tariffs.

An Amazon spokesperson declined to comment. The company identified international trade disputes as a risk factor in its annual report released in February. “China-based suppliers provide significant portions of our components and finished goods,” the company said.

It’s unclear how widespread the cancellations are and how many types of merchandise they affect.

One vendor who has been selling beach chairs made in China to Amazon for more than a decade received an email from the company last week that said it was canceling some purchase orders it placed “in error“ and instructed the vendor not to ship them. The email, which was reviewed by Bloomberg, didn’t mention tariffs.

The vendor said the $500,000 wholesale order was nixed after the chairs had already been manufactured, leaving this person on the hook to pay the factory and find other buyers. The vendor, who spoke on condition of anonymity for fear of retaliation from Amazon, said the company had never canceled one of its orders in such as manner.

Scott Miller, a former Amazon vendor manager who now works as an e-commerce consultant, said Amazon canceled orders for merchandise made in China and other Asian countries from several of his clients. The cancellations came without warning, he said, and could force vendors to renegotiate terms with the e-commerce company.

“Amazon really holds all of the cards,” said Miller, founder and CEO of pdPlus in Minneapolis. “The only real recourse vendors have is to either sell this inventory in other countries at lower margins or try to work with other retailers.”

The beach chair vendor and Miller said Amazon cancelled “direct import orders,” a process in which Amazon buys inventory wholesale in the country in which it is made and ships the products to its warehouses in the United States. Amazon serves as the importer of record for the orders, which means it pays tariffs when the products reach US ports. 

Amazon has been importing items this way for years as a way to reduce costs since Amazon can often use bulk shipping rates to import items at lower costs than vendors. Canceling those orders puts the tariff exposure back on vendors if they import merchandise to the US by other means.

Items Amazon buys directly from vendors account for about 40% of the products sold on its website. The rest of the company’s sales are made by independent merchants who essentially rent digital shelf space from Amazon, paying the company commissions and fees for logistics and advertising.

Trump’s tariffs have rattled global markets. Many businesses are raising prices, stoking fears of a recession. On Tuesday, Robert W. Baird & Co. Inc. reduced its 2025 revenue forecast for Amazon, citing the effects of tariffs in a research note. The company’s shares have fallen about 21% this year, compared with the S&P 500’s 15% slump.

This story was originally featured on Fortune.com

Source link

The global trade ecosystem has been overturned. President Donald Trump imposed 104% tariffs on China on Wednesday, a week after levying a host of tariffs ranging from a minimum of 10% on imports generally to 20% on EU goods and 46% on ones from Vietnam—levels not seen for nearly a century. China quickly retaliated, announcing today it will raise tariffs on American goods to 84% starting tomorrow.

With retaliatory actions likely from other trade partners and U.S. threats to match any of those tariffs, we’re facing what promises to be a prolonged period of trade instability that few organizations are prepared to weather.

Many executives are justifiably worried about the direct financial implications—the immediate cost increases on imported materials and components from direct suppliers. However, that’s just the tip of the iceberg. There will be a cascading effect as tariffs impact second- and third-tier vendors as well. Businesses need to plan for not just increased costs for their business, but also lean inventories and the potential for failing due to costly errors, penalties, and reputational damage due to inaccurate reporting or regulatory non-compliance. The complexities introduced by tariffs demand a fundamental shift in how businesses approach supply chain management.

The permacrisis era

Tariffs are just the most recent example illustrating the uncertainty about economic policy and extreme volatility of business risks and the challenges they pose. I’ve written extensively about permacrisis—that perpetual state of navigating simultaneous and ongoing crises—and how our conventional risk management frameworks were simply not architected for today’s complicated trade realities. These new tariffs introduce specialized regulatory complexities that few organizations possess the internal expertise to navigate successfully.

The efficiency-driven supply chain models that dominated pre-pandemic thinking have left businesses particularly vulnerable. The pursuit of “lean” operations—minimal inventory buffers and concentrated supplier relationships—has created structural fragilities that tariff disruptions will mercilessly expose. What once represented operational excellence now constitutes existential vulnerability.

Anticipate the damage

For weeks, executives have been gathering in board rooms scrambling to understand what the tariff “end game” will look like and what the tariffs mean for them. The tariffs may feel like a shock to the system for executives, but I would advise against being blinded by the initial flash of lightning from the tariff news. Executives need to anticipate what might come next—such as potential rollbacks, and more likely, retaliatory moves. Planning for various scenarios and quantifying the financial and operational impact of each will help them understand potential outcomes and develop response and contingency strategies.

Address your supply chain and compliance

Next, you want to be prepared to address the repercussions that may come down the pipeline from these new tariffs. This will involve conducting a fundamental reassessment of your supply chain strategy, beginning with comprehensive network mapping. This means looking beyond your immediate suppliers to understand the complete ecosystem supporting your business operations. Which of your suppliers’ suppliers face direct tariff exposure? How will these costs transmit through your supply network? Where are the critical chokepoints? Real-time visibility and data-driven decisions are critical for survival.

Equally crucial is developing specialized expertise in tariff classification and customs compliance. The complexity of international trade regulations creates significant exposure to compliance failures, misclassifications, and documentation errors—each carrying substantial financial penalties. This expertise gap must be addressed, whether through internal capability building or strategic external partnerships.

Organizations must also embrace scenario planning with renewed vigor. Modeling various tariff escalation scenarios and their operational impacts provides critical insights for strategic decision-making. What happens when key components face 25% cost increases? How will currency fluctuations compound these effects? Which alternative sourcing strategies might mitigate these impacts?

Build operational resilience

When you have done the assessments of your company’s downstream risks from the tariffs, and taken action to minimize the immediate effects, you should take action to build operational resilience to protect the business when other operational threats arise. There are a number of tactical measures that companies should adopt to increase resilience for the future, specifically:

• Diversify suppliers, increase inventory buffers, and enact robust contingency plans
• Conduct comprehensive contract reviews with suppliers and customers to understand tariff-related cost allocation mechanisms and renegotiation opportunities
• Explore specialized trade programs including Foreign Trade Zones, duty drawback provisions, and bonded warehousing arrangements that may provide meaningful relief
• Reconsider inventory policies for critical components, potentially increasing strategic buffer stocks
• Implement advanced supply chain visibility technologies enabling real-time monitoring and rapid response capabilities
• Investigate product engineering modifications that reduce dependence on heavily tariffed products

The organizations that successfully navigate this environment will be those recognizing that tariffs aren’t merely a finance department concern—they represent a fundamental enterprise risk requiring coordinated cross-functional responses. Legal, supply chain, finance, enterprise risk management, internal audit, and operations must collaborate with unprecedented alignment. Adopting a connected risk approach will break down siloes and enable more successful problem solving and risk mitigation.

Prepare for the future global trade landscape

We’re in the early stages of unprecedented uncertainty with regard to global trade, what I’m calling the “fog of tariff wars.” Forward-thinking leaders should prepare for a future where global commerce increasingly fragments along geopolitical fault lines.

The competitive advantage will belong to organizations that embed adaptability into their operational DNA. This means developing not just responses to today’s tariffs but building systems capable of rapidly reconfiguring as conditions evolve. It requires viewing your supply chain not as a fixed asset but as a dynamic network that can flex and transform in response to shifting trade realities.

Businesses are not just navigating economic uncertainty, they’re facing a systemic overhaul of how goods move across borders. Companies that move with urgency to understand and mitigate the risks and adapt their organizations to the new reality will find strategic advantages where others perceive only disruption. The time to act isn’t tomorrow—it’s right now, before the full impact of the new tariffs reshapes the global trade landscape.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.

This story was originally featured on Fortune.com