As you’ve probably already heard by now.
Trump announced reciprocal tariffs against pretty much the entire world on April 2 (or “Liberation Day”).
And this was the market reaction (Spoiler: not pretty):
Trump 2.0 is definitely starting to look like the biggest shakeup to the global world order since World War II, and is starting to match COVID in levels of business disruption.
So this is big enough that I wanted to take some time out to properly understand what Trump announced this week, what are some potential implications, and how this may play out going forward.
And of course – when would I start buying.
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What are the tariffs announced by Trump?
The chart below sums this up beautifully.
The Trump administration’s tariff agenda represents the most comprehensive restructuring of U.S. trade policy in centuries – pushing tariffs to the highest level in more than 100 years.
Well beyond the level of the Smoot-Hawley Tariff Act of 1930 – which sparked retaliatory tariffs from key trading partners, resulting in a sharp decline in global trade, leading to the Great Depression (if you remember your history lessons).
The proposed measures broadly include:
- Universal 10% tariff on all imports from all countries, effective April 5, 2025
- Additional “reciprocal higher tariffs” on countries with which the US has the largest trade deficits, effective April 9, 2025
- Exclusions for certain goods including copper, pharmaceuticals, semiconductors, lumber, and energy products
- Special provisions for Canada and Mexico tied to USMCA compliance
- Authority to increase tariffs if trading partners retaliate
Reciprocal Tariffs by Trump – Broken down
And of course, this being Trump, he had a beautiful chart to back it up:
I’m just going to put it out there that heading into “Liberation Day”, I had an optimistic case, a base case, and worst case scenario.
And what Trump was announced, is probably worse than my worst-case scenario.
The key tariffs below:
- Cambodia – 49%
- Laos – 48%
- Madagascar – 47%
- Vietnam – 46%
- Myanmar (Burma) – 44%
- Sri Lanka – 44%
- Bangladesh – 37%
- Serbia – 37%
- Botswana – 37%
- Thailand – 36%
- China – 34%
- Taiwan – 32%
- Indonesia – 32%
- Switzerland – 31%
- South Africa – 30%
- Pakistan – 29%
- Tunisia – 28%
- Kazakhstan – 27%
- India – 26%
- South Korea – 25%
- Japan – 24%
- Malaysia – 24%
- Côte d’Ivoire – 21%
- European Union – 20%
- Jordan – 20%
- Nicaragua – 18%
- Philippines – 17%
- Israel – 17%
- Norway – 15%
- Turkey – 10%
- Peru – 10%
- Costa Rica – 10%
- Dominican Republic – 10%
- United Arab Emirates – 10%
- New Zealand – 10%
- Argentina – 10%
- Ecuador – 10%
- Guatemala – 10%
- Honduras – 10%
- Egypt – 10%
- Saudi Arabia – 10%
- El Salvador – 10%
- Morocco – 10%
- Trinidad and Tobago – 10%
- Brazil – 10%
- Singapore – 10%
- Chile – 10%
- Australia – 10%
- Colombia – 10%
- United Kingdom – 10%
If you include the 25% tariff on Canadian and Mexican goods announced a while back, pretty much all goods into the US are tariffed at this point:
Are the tariffs a bargaining chip? Or are they here to stay?
The million-dollar question of course.
Is whether the tariffs are here to stay, or are they merely a bargaining chip.
This ties back to how other countries will react.
Trump brands this as “reciprocal tariffs”, which stands to reason that if other countries bend the knee and remove all tariffs against US goods, technically Trump may drop tariffs against them.
Will other countries escalate? How did other countries respond to the tariffs?
Initial reactions from other countries below:
1. European Union: Retaliatory measures being “prepared”
2. China: Urges the US to “immediately” cancel reciprocal tariffs or they will take “counter-measures”
3. Germany: Calls on EU to pressure President Trump
4. Japan: Says tariffs are “regrettable” and seeks exemption
5. Canada: Preparing countermeasures to existing tariffs
6. Mexico: Plans a broader response as soon as April 3rd
7. South Korea: Begins emergency support for impacted industries
8. UK: Attempting to reach a trade deal with the US keeping “options open”
9. Brazil: Considering going to WTO, evaluating potential responses
My take? How will tariffs play out?
Looking at the level of tariffs imposed by Trump.
I think for the bulk of the countries above.
Trying to play hard ball with Trump is probably not going to work out well.
The level of pain for many of these economies, relative to their GDP, is likely to be too high.
Sure they make moan and grumble.
But in the months ahead, I think there is a good chance that most of the countries are just going to accede to whatever request Trump wants, and that a decent chunk of the tariffs announced this week will go away.
What if I’m wrong? And tariffs are here to stay?
That said, it turns out the methodology used to calculate reciprocal rates is simply driven by the relative trade imbalance of the counterparty (Trade Deficit ÷ Total Imports x 100)– not their actual tariffs imposed on US goods.
One interpretation is that this means these tariffs are not simply a bargaining chip to reduce trade restrictions on the US, but rather a more sticky policy meant to shrink the trade deficit.
In other words, they may be much more prolonged than the market hopes.
If I am wrong and the tariffs are here to stay… then boy that is going to be very disruptive for global trade.
Whatever the case though, it’s fairly clear that whichever way this plays out, Trump is going to (and arguably already has) rewrite the post-WWII global world order.
The days of relying on the US to safeguard global world trade, as the buyer of the world’s goods, as the global policeman.
I’m sorry to break it to you.
But “Toto, I’ve a feeling we’re not in Kansas anymore.”
But… no deal for China?
The big exception, in my view, is China.
On China – somehow I don’t think Trump is looking for a deal, he is looking to decouple the 2 economies.
Trump previously announced 20% tariffs on China.
Throw in another 34% announced this week, and it adds up to a total of 54%.
That’s on top of the 7.5% – 25% tariffs by Trump in the first term (which was kept in place by Biden).
That’s a minimum of 60% total tariffs on China goods, pretty much in line with what Trump promised on his campaign trail.
And unlike tariffs against Mexico, Canada, EU etc which I suspect are bargaining chips and can be dropped if those countries respond the right way.
With China – I just don’t see Trump looking for a deal here.
And I suspect China knows this as well.
If I am right – the China tariffs are not going away, and they are an intentional decoupling of the 2 largest global economies from a trade and economic perspective.
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Will Trump’s tariffs cause a stock market crash?
As the saying goes.
If you want to rewrite the global world order in 3 – 6 months, you have to break some eggs.
With the level of the tariffs being announced by Trump above, no doubt short term uncertainty (and volatility) will explode.
This is almost COVID level of uncertainty for most companies, as they now need to scramble to understand how to reroute shipping / production, or who to foot the bill for these tariffs.
That uncertainty of course, has spilt over to stocks, and this was the stock market reaction after “Liberation Day”.
Very ugly close on the S&P500 as well – pretty much closing at session lows, and well below all key moving averages and support levels.
A close like that suggests more short term downside is possible.
But what is the mid term impact of these tariffs?
But let’s game this out.
Look beyond the short term chaos.
What is the actual impact on economic growth / inflation in the mid term?
Short answer – I don’t think you can call this accurately until you start seeing how countries respond, and know tariffs which are here to stay.
Meanwhile, Congress will be working towards delivering on tax cuts, which depending on the size could be meaningful stimulus to offset the impact of the tariffs on the US economy.
You also don’t know how China will respond, which to me is a big one.
If China unleashes large domestic stimulus, that could offset a good chunk of the tariffs impact.
So the big factors to me are:
- How other countries respond – and does Trump drop these tariffs in the months ahead?
- Will congress pass tax cuts – and what size?
- Will China unleash domestic stimulus?
And don’t forget the Feds.
When interest rates are at 4.5% – there’s actually plenty of room to cut if things head south.
And as of today, market is now pricing in a massive 4 rate cuts in 2025.
I think this is aggressive as the Feds will want to watch the data before responding, but the point is that rate cuts from the Fed can materially change the outcome.
Long story short – short term chaos, mid term too early to call.
Much will depend on how other countries react, whether Trump cuts a deal, and how we progress on the policy stimulus.
Trump is delivering on his promises?
This probably isn’t fully relevant.
But I’m just going to put it out there for food for thought.
Trump wanted:
- lower USD
- lower oil price
- lower deficits
- lower long rates
- fiscal leeway to cut taxes
Hey – you can’t say he hasn’t delivered.
Will I buy more stocks, REITs and Bitcoin?
And we come to the million dollar question – Will I buy more stocks, REITs and Bitcoin.
Short term technicals are terrible.
The S&P500 has broken the uptrend in place since late 2023.
And is sitting below just about every key moving average and key support level.
This suggests at a minimum that some caution is required in the short term, to see if we find a bottom.
That being said, for the first time this cycle we seem to have had real fear this week, and that is sometimes a contrarian buying signal.
I mean just look at that reading on Fear & Greed Index.
So I’ll be keeping a very open eye out on price action in the days ahead for buying opportunities.
On the macro front.
I have shared my views previously that my read – is that Trump is happy with some short term pain, if it sets the US up for mid term growth.
So far at least, I have been proven right on that front.
But it’s starting to get to a point where the market is pricing this in.
And the more gloomy the outlook the market prices in on Trump, the more “excited” I get.
The key question on my mind from a Trump perspective – is at what point does the pain threshold get too high, that we see a Trump “pivot”.
Where Trump starts to refocus on the economy again.
That’s really the key question at the moment.
And I have my views on this, and I think we will reach that point in the months ahead.
But I think this is one of those where you just have to be very nimble and watch the price action, and watch the news coming out.
I will be guided by both the macro news, and the charts on this one.
In any case, the stocks and REITs I am keen to pick up are shared on FH Premium.
And I’ll share regular updates on FH Premium as and when I add / sell my positions.
This is an FH Premium post.
I am making this available to all readers to keep you updated on my latest thinking given the current market volatility.
If you find content like this helpful, do consider subscribing for FH Premium.
You will also get access to my latest macro views, full stock / REIT watchlist, and personal portfolio (updated weekly).