Macro Global Markets：New US tariffs hit global markets - Global markets react

 

U.S. President Donald Trump signed a measure on Thursday directing the U.S. trade representative and commerce secretary to propose new tariffs on various countries in an effort to rebalance trade relations. This comprehensive process may take weeks or months to complete. Howard Lutnick, Trump's nominee to head the Commerce Department, said all studies should be completed by April 1 and Trump could take immediate action after that.

The new import taxes would be tailored for each country and aimed at offsetting taxes those countries impose on U.S. goods, as well as non-tariff barriers such as unfair subsidies, regulations, value-added taxes, exchange rates and weak intellectual property protections, according to a memo circulated by the White House. Trump emphasized that reciprocal tariffs will be imposed on various countries, that is, the United States will impose the same tariffs as each country imposes on the United States.

 

Trump said the reciprocal tariffs are intended to address the U.S. trade deficit and unfair treatment of its exports around the world. He has already imposed 10% tariffs on Chinese goods and plans to impose 25% tariffs on all U.S. steel and aluminum imports next month. He also mentioned the possibility of higher import taxes on cars, semiconductors and medicines, especially on the European Union, Japan and South Korea.

But the policy has injected uncertainty into the global economy, with businesses and consumers waiting to see what happens. Reciprocal tariffs are expected to hit less developed economies with higher average tariffs on U.S. products hard, a departure from the general tax on all imports that Trump proposed during his 2024 presidential campaign, though he did not rule out a move to global unified tariffs in the future. Trump specifically mentioned Japan and South Korea, believing that these two countries are taking advantage of the United States and may become his latest targets. He also criticised India's high tariff barriers and the European Union's value-added tax.

 

Investors are bracing for further weakness in the U.S. Treasury market as they bet that Trump’s tariff threats will become a reality, the survey showed. Persistent trade concerns could push the benchmark 10-year Treasury yield to 4.80% within the next six months, according to the median estimate of 153 respondents, putting it at the top of the range it has traded in the past few years. During this period, more than half of the participants expected the United States to impose tariffs on at least some economies, and more than a third of respondents also expected the United States to implement universal taxation.

On Thursday, the 10-year Treasury yield fell to about 4.53%. Whatever form the trade war takes, most investors agree it would likely be an unwelcome development for the $29 trillion U.S. Treasury market. Historically, U.S. debt has been a popular safe haven for investors in turbulent times because it is backed by the U.S. government. But tariffs have heightened concerns about persistently high U.S. inflation, prompting bets the Federal Reserve will not cut interest rates anytime soon, keeping yields elevated and weighing on bond prices. Concerns about the fiscal health of the United States have also plagued the asset class in recent years.

 

The decision not to immediately implement tariffs could be seen as an opportunity for negotiations. He wants to discuss with other countries how current policies have created an unbalanced trade environment, and he is more than happy to lower tariffs if countries want to do so or remove other trade barriers. But the tariff plan is breathtaking in its scope, creating a huge logistical task for the Commerce Department and the Office of the U.S. Trade Representative. Each country has its own tariff schedule, which contains thousands of tariff codes.

A system of reciprocal tariffs would mark a dramatic change in the way the United States approaches trade and would undermine one of the founding principles of the global trading system that the United States established after World War II. The United States has long advocated so-called "most favored nation treatment" for tariffs, but Trump's policies will change that.

 

Meanwhile, gold prices have approached $3,000 an ounce, close to all-time highs, despite strong U.S. stocks. Survey respondents have their preferred safe havens, but their overall strategy for dealing with tariff-driven volatility is to bet on increased market volatility over the next six months. The strategy is particularly evident in the $300 billion foreign exchange options market, where trading volumes have surged to multi-year highs as investors seek protection. The Canadian dollar and Mexican peso, in particular, have become the main targets of Trump's threats in recent weeks, with survey respondents identifying them as the currencies most likely to underperform in any tariff-related volatility.

As the reciprocal tariff policy was not imposed immediately, the dollar took a hit and U.S. stocks were close to all-time highs. Investors and markets began to speculate whether Trump's remarks were a negotiating tactic rather than a final action. But in any case, Trump's reciprocal tariff policy has brought significant uncertainty to the global economy and financial markets. Investors and market participants are closely watching the U.S. government's next moves and how countries respond to these potential tariff changes. The market is likely to continue to experience volatility in the coming months as research is completed and policies are gradually implemented. Businesses and consumers need to prepare for possible changes in the trade environment and economic impacts.