Market Turmoil Following Trump's Tariff Announcement

The tariff announcement this morning has sent shockwaves through global financial markets, leading to heightened uncertainty and volatility.

In this volatile environment, investors are advised to adopt a cautious approach, prioritizing safety over potential returns.

Market Impact

Equity Markets: The increased uncertainty has led to a rise in the equity risk premium, causing equity markets to decline. Stock futures plummeted, with the Dow Jones Industrial Average falling over 1,100 points and the S&P 500 and Nasdaq experiencing drops of 3.9% and 4.7%, respectively.
Bond Market: As investors seek safer havens, funds are flowing into the bond market, driving bond prices up and yields down. This trend aligns with Trump & Bessant's economic goals, such as keeping the 10-year U.S. Treasury yield below 4%.

Regional Implications

China: China faces a 34% reciprocal tariff, which, combined with previous tariffs, could reach a total of 54% on Chinese goods.
ASEAN: Hit hardest, with tariffs surpassing 40% for many. Japan (24%) and South Korea (25%) also face steep hikes — unexpected given their alignment with U.S. interests. Whilst most face punishing rates (>40%), while Singapore enjoys a mere 10%. Smaller economies may concede to U.S. demands, softening final figures.
Europe: Tariffs remain at 20%, consistent with market expectations.
Americas: Trade with Canada and Mexico is largely unaffected due to existing agreements.

Broader Risks

U.S. Recession Odds: The likelihood of a U.S. recession has increased, which could have far-reaching impacts on global markets.
Global Trade Slowdown: A decline in global trade appears inevitable, with potential retaliation from other nations exacerbating the situation.

Appendix: Tariff Formula

The nation’s trade deficit with U.S divided by the nation’s exports to U.S.

For example, Vietnam:

Exports to U.S. ~ $136.6b

Imports from U.S. ~ $13.1b

US has a trade deficit with Vietnam of ~ $123.5b

So, after giving 50% discount, the reciprocal tariff on Vietnam

= Max [10%; 50% × ($123.5b / $136.6b)] = Max (10%; 50% × ~90%) = Max (10%, ~46%) = ~46%