President Trump shocked global investors on April 2 (what he declared “Liberation Day”) by announcing a comprehensive set of much higher than expected tariffs. These included a 10% baseline tariff on all imports and unexpected and significantly higher tariffs for certain trade partners, such as 54% for China and 20% for the European Union. These tariffs in aggregate, if implemented and maintained, would result in the effective tariff rate on all imports rising to 24%, putting it at a 125-year high.
In response to Trump’s announcement, global equity markets suffered sharp declines. After closing higher on Wednesday, S&P 500 futures dropped significantly as Trump laid out his plan, and on Thursday, April 3, the S&P 500 fell 4.84%, making it one of the worst single days in market history. European and Asian stock indexes also fell meaningfully. The U.S. dollar weakened against major currencies over fears of a slowdown in light of Trump’s protectionist policies.
Perhaps the most surprising aspect to the announcements was the equation used to arrive at “reciprocal” tariff levels. This so-called “reciprocal tariff” is a bit of a misnomer because they do not truly reciprocate the existing tariff levels imposed on the U.S. by other countries. Instead, these tariffs have been based primarily on current trade deficits, meaning that countries with larger trade surpluses with the U.S. are being subjected to higher tariffs—whether or not they impose high tariffs on U.S. goods. In this way, the announced tariffs seem to be more of a blunt tool aimed at reducing trade deficits.
There are still many lingering questions, including what potential retaliatory measures will come from countries hit with tariffs. Our expectation is that trade partners will retaliate to varying degrees, if not simply for their own political motives. There are also continuing questions about whether these tariff levels will remain in place or possibly be lowered, what their impact will be on the Fed’s monetary policy, and how they will affect global economic growth and trade relations.
It goes without saying that these announced tariffs have injected a big dose of additional uncertainty in the financial markets, and we understand that such developments can be worrying. Please know that our team is working hard and actively analyzing potential impacts, as well as potential opportunities.
We plan to cover the events and impacts of “Liberation Day” in more detail within our upcoming First Quarter Investment Commentary.
In the meantime, we know that the drive to take action during concerning times can be difficult to resist. In our role as wealth advisor to our clients, we take seriously our responsibility to help guide thoughtful decision making and wise action. For that reason, we direct you to our post, “Steady Guidance in Uncertain Times” which covers how we advise clients through times of uncertainty.
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