As you may have heard, Donald Trump is poised this week to announce new tariffs on imported cars. This change will no doubt steal the limelight and fill pundits’ mouths with urgent economic debate. The unfortunate announcement comes at a time when several economic indicators are begging to be noticed. Probably the biggest highlight is the Nonfarm Payrolls (NFP) report for March. Amidst the reports and rumors, one day indicating progress, the next signaling a trade war’s escalation, markets brace for counter-measures and the repercussions associated with increased tariffs.
The chart below shows us the average trade-weighted tariff rate on all US imports. This spike corresponds with the Trump administration’s 2018 tariffs. It increased by about 5.5 to 6.0 ppt. This back and forth skyrockets tariffs to their highest point since World War II. It further exacerbates inflationary fears and negatively impacts economic growth. These concerns have fostered an incredibly risk-averse market environment. The result is that the yields on US Treasury bonds are being forced down by worldwide economic uncertainties.
Global economic indicators reflect these tensions. In Germany, figures released today pointed to a fall in annual CPI inflation to 2.2% in March. This drop surprised no one, and analysts had been expecting this decline. In the currency markets, the GBP/USD was unchanged. At the beginning of the week, it was stuck in a tight range just above 1.2950. In like manner, the EUR/USD has been challenged for traction, moving just above 1.0800 on Monday’s trade.
The effect of these tariffs isn’t limited to just the US economy. Mutinous suppliers and contagious inflation concerns over the president’s tariff strategy have fanned inflation fears and hobbled global economic growth projections. This risk-averse sentiment has, perhaps ironically, aided the US Dollar’s resilience against its competitors.
In commodities, the gold market has jumped due to fears over the economic impact of Trump’s tariff tantrum. As global equities tumbled, the XAU/USD soared as investors flocked to safe-haven assets. By Monday afternoon, it was on a spectacular new rally on $3,150. This rally is more indicative of how the rest of the market is doing. Investors are still working to understand the effects of increased tariffs and new inflationary pressures.
The current tariff crisis has changed how retail investors are trading as well. It’s worth noting that according to 81.4% of retail investor accounts lose money when trading CFDs with these providers. This statistic lays bare the intricacies and dangers of steering through today’s treacherous markets.