The conclusion of the U.S. Trade Representative’s (USTR) comment period on trade practices involving the G20 and top U.S. goods deficit countries has sent ripples through global markets. A March 11 comment period death knell sounded with global equities stranded in a four-day losing streak. This current downturn is driven by heightened uncertainty due to President Trump’s unpredictable volatility – sparked by his initiation of reciprocal tariffs. Meanwhile, investors are probably starting to get jittery. They hunker down in the face of an imposed 25% global tariff on all auto and auto-parts imports, set to begin on April 3. This backdrop of unpredictability has investors facing the consequences, such as those from a prolonged trade war.
Tumultuous Global Market Reactions
Global equities are in deep meltdown, their fourth straight day of losses. This market shakiness is largely driven by the uncertainty still surrounding use on the part of President Trump of his proposed reciprocal tariffs. And the recent announcement of a 25% tariff on all auto and auto-parts imports has fanned these flames, sending markets into further panic. Despite volatility elsewhere, price actions in G10 foreign exchanges remain almost eerily calm. Yet greater market worry is evident at the prospect of second-order effects from these interventionist trade policies.
The unexpected insertion of the United Kingdom in these otherwise broad measures has most definitely caught people’s attention. This is especially counterintuitive, given the UK’s forecasted $12 billion goods trade surplus with the U.S. in 2024. Since Trump’s surprise win in November, the British pound has already shown that resilience and then some. That resilience speaks to the fact that markets expect the UK will dodge the worst of the fallout. With nine Asian countries among the 21 countries at risk, Asia is experiencing some of the highest dangers of currency repricing.
Currency Market Dynamics
Among the currency markets, the reaction to these events has been even more subdued. It is telling that all G10 currencies have moved less than 1% against the U.S. dollar. The Swedish Krona (SEK) is the only notable exception. This quiet shift indicates that investors are choosing to play it safe in response to the clamor and chaos currently fogging up the tariff window.
Even with these minor shifts, the uncertainty of White House policy is reaching a boiling point. That uncertainty is beginning to shake faith in the dollar itself. The net long positions in dollars have decreased to the lowest levels since October amid increasing investor risk aversion. Gold has proven to be a popular flight asset, recently clearing $3,100. It provides protection from the storm of economic turmoil and dollar devaluation.
Trade Deficit Woes and Economic Implications
The USTR’s reported prioritization of nations with high and increasing trade deficits with the U.S. reflects growing alarm over increasing trade deficits. In 2024, Taiwan, Ireland and South Korea all experienced record breaking trade gaps. Pressures—Taiwan’s gap exploded by 52 percent, Ireland’s by 33 percent, and South Korea’s by 27 percent. These figures highlight the ongoing challenges facing U.S. trade relations and underscore the complexity of addressing such disparities amidst escalating tensions.
Though the time of tariffs has passed, a hotbed of tensions is still ripe for investors’ fears as a prolonged trade war looms. Those first reactions to auto tariffs cause a lot of anxiety. People are concerned about the reciprocal tariffs and their fallout on the overall economy. Current tariff levels are approaching historic highs, levels we haven’t seen since the second World War. This increase further inflames an already volatile situation.