Donald Trump’s recently released tariff plan could prove disastrous, likely enough to undo decades of international trade cooperation. Their proposal includes tariffs of 10% to 41% with our trading partners, from Chile to Syria. The announcement is set to be implemented on August 7. In fact, it already has, shaking global markets and sending stock prices plunging across the globe.
On Friday, markets were down all over the world. In fact, the S&P 500 was down 1.6%, and the tech-heavy Nasdaq Composite was down even more at 2.24%. The blue-chip index ended lower each day of the week, in its worst weekly performance since early April. The positive news on infrastructural investment sent the US dollar tumbling. Consequently, the dollar index dropped by 1.2%. As Reuter’s Jonathan Spicer reports, analysts are increasingly calling this worsening tariff fiasco a potential ticking bomb with disastrous impacts on the worldwide economy.
Immediate Market Reactions
In Europe, market indices immediately demonstrated the fear and trepidation that the EU faced at the prospect of a tariff announcement. On Thursday, the pan-European Stoxx 600 index fell nearly 1.89%. At the same time, Germany’s DAX index dropped by 2.66% and France’s CAC 40 index was down by 2.91%. Meanwhile, in Asia, Hong Kong’s Hang Seng index fell by 1.07%, Japan’s Nikkei 225 decreased by 0.66%, and Taiwan’s benchmark index dropped by 0.46%. South Korea’s benchmark index took an even deeper dive, falling by 3.88%.
Stock prices are experiencing a sharp correction, and US Treasury yields are in freefall as well. The 10-year yield recently plummeted to 4.21% and the 30-year yield fell all the way to 4.8%. The outlook for our economic landscape may be getting a little cloudy out there. Consequently, futures traders on Friday afternoon were pricing in an 85% probability that the Federal Reserve will be cutting interest rates in September.
Economic Implications
The new tariff plan has sparked controversy and debate as to what effects it will have on the US economy. The number came in with the nation adding a disappointing 73,000 jobs in July, well below expectations. These’re the measures that analysts are especially worried would increase inflation and hurt growth.
Ulrike Hoffmann-Burchardi, an economist, stated, > “Still, tariffs are a headwind for global trade and growth, and they have started to contribute to a rise in inflation.” She noted that while tariffs are set to increase, “Our base case remains that the US effective tariff rate should settle at around 15% by the end of the year, and the economic impact is likely to prove manageable.”
It is partly the uncertainty created by the tariffs that has caused enormous market volatility in the first place. Glen Smith pointed out that “Tariff worries are back in focus, and even though the market has remained resilient, we are still in a headline-sensitive market.”
Long-Term Perspectives
As investors continue to face uncertainty, some analysts counter that the net economic effect of these tariffs is minimal at best. Derek Halpenny commented on the longer-term effects: “While the dollar sell-off in April included a degree of shock and surprise that won’t be replicated now, we would still conclude tariffs as ultimately dollar negative over time as it hits real growth, lowers real yields and will encourage portfolio diversification.”
Peter Ricchiuti remarked on the market’s fatigue regarding tariff discussions: “The market is tired of the tariff drama.” Most importantly, he explained that most of the major companies had already imported and shipped tons and tons of product before these tariffs were put in place.
“Today is merely the next episode in Trump’s tariff story – it’s unwelcome, hence the market dip. It’s not entirely unexpected, hence the lack of a full market crash.”