Trump tariffs: 'Vote of no confidence' from markets

Trump’s “Liberation Day” announcements landed at the very negative end of market expectations, with the average tariff rate rising to over 20% from just 2.5% before Trump took office, the highest level since the early 20th century.

Asian countries were hit the hardest, with some seeing punishing reciprocal tariffs of over 40% and China being hit with a massive 34% levy on top of the 20% already imposed since the start of Trump’s second term.

On the other side of the spectrum are the UK and major Latin American countries, which were slapped with at most a 10% duty, with the EU in the middle at 20%. 

The contrast between winners and losers is clear in the FX market, where most Asian currencies, particularly the likes of Thai baht, Chinese yuan and the Malaysian ringgit, have sold off against their peers. There is a notable exception – the Japanese yen.

Despite a reciprocal tariff of 24% imposed on Japan, the yen is emerging as a safe haven of choice at a time of heightened global trade uncertainty and rising economic concerns.

The sharp sell-off in the US equity market and the weakness of the US dollar, which somewhat counterintuitively fell by around 1% against major peers, can be seen as a market’s vote of no confidence in Trump’s trade policies. Aside from hurting its trading partners, the tariffs are set to push up prices and dampen economic activity in the US.

While it is clear that we’re witnessing a historic moment of the US breaking with the old order, we acknowledge that unless countries retaliate, these often very steep reciprocal tariffs are considered a ceiling and subject to negotiation.

With the most punishing levies set to kick off on April 9, investors may hope for their dilution or postponement. Attention is now focused on how countries will react to this Trump shock, and any headlines detailing the responses are likely to add to market volatility.