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US President Donald Trump announced sweeping tariffs on Liberation Day. Country-specific reciprocal tariffs starting on April 9th included a 34% tariff on China, 20% on the EU, 46% on Vietnam, 32% on Taiwan, 24% on Japan, 26% on India, and 25% on South Korea. Although Canada and Mexico were exempted from the reciprocal, they were not spared from the baseline tariff of 10% applied to all US imports, effective April 5th. The 25% tariff on all foreign-made automobiles became effective on April 3rd.
Trump’s announcement of sweeping tariffs will likely elicit widespread criticism and concern from trading partners. Although some countries are contemplating retaliatory measures, they have also emphasized seeking dialogue and negotiation to avert an escalation into a full-scale global trade war. By setting his “discounted” reciprocal tariffs lower than those imposed on US goods by other countries, Trump signalled openness to negotiations and trade deals. Trump suggested tariffs could be reduced or eliminated if other countries adjusted their trade policies to be more favourable to the US, specifically ending their own tariffs and trade barriers. However, Trump did not rule out imposing additional tariffs depending on how America’s trading partners responded.
As expected, currencies were pulled in both directions on Trump’s tariff announcement. The cautiously optimistic investor will likely point to the tariff levels as intentionally less aggressive than they could have been. Conversely, the pessimists see Trump’s sweeping tariffs as confirming a hard pivot from decades of globalization towards protectionism. They also view the higher-than-before tariff rates as sufficient to weigh on global trade volumes and world growth, as evidenced by the relatively weaker Asian currencies. Trump’s tariffs on Emerging Asian countries were notably high, sending a message that the US was not just targeting China directly, but also indirectly blocking the “China Plus One” strategy many companies use to diversify supply chains to circumvent US tariffs.
Hence, expect two-way swings as the global response is still forming, with some countries seen retaliating and others negotiating, amid narratives looking for a deal with the US and resignation to the “new normal” on global trade.
Quote of the Day
“Protectionism will do little to create jobs and if foreigners retaliate, we will surely lose jobs.”
Alan Greenspan
April 3 in history
Great Britain went back to the gold standard in 1925.
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