U.S. Tariffs - Short term relief, long term uncertainty

In early April 2025, President Donald Trump announced sweeping tariffs under the International Emergency Economic Powers Act (IEEPA), imposing a 10% baseline tariff on all imports effective April 5 and higher “reciprocal” tariffs on countries with significant trade deficits with the U.S., including a 145% levy on Chinese imports.

The announcement led to significant volatility in financial markets. The U.S. dollar weakened by over 4%, contrary to expectations of short-term strength due to inflationary pressures and higher bond yields. Simultaneously, the euro gained 2.8%, defying expectations of weakening. Additionally, U.S. bond markets showed unusual behavior as 5-year breakeven inflation rates fell while real yields increased, implying growing concerns about U.S. economic stability.

Tech stocks experienced a surge after the Trump administration exempted key electronics—including smartphones, laptops, and semiconductor components—from the new tariffs on Chinese imports. This move eased market concerns over potential price hikes and supply chain disruptions in the tech industry, particularly for major players like Apple, whose shares gained 5.3% after the announcement. 

In the short term, market volatility is expected to persist as investors navigate the new trade landscape. Goldman Sachs CEO David Solomon has advised clients to adopt a cautious approach amid ongoing political and market uncertainty, primarily driven by shifting U.S. tariff policies. 

Economists warn that the tariffs could have a dampening effect on global economic growth. J.P. Morgan Research has marked down China’s full-year 2025 growth to 4.4% due to the reciprocal tariffs and retaliation measures. Additionally, the uncertainty surrounding trade policies may lead to reduced investment and slower economic activity worldwide.

Former UK Prime Minister Gordon Brown has criticised President Trump for “weaponising” the global trade system by imposing steep import tariffs, warning this could lead to a breakdown in the global economic order and a potential depression akin to the 1930s. Wild indeed!

While the immediate market reactions have been mixed, with certain sectors like technology experiencing short-term gains, the broader economic implications of the U.S. tariffs remain uncertain. Investors and policymakers alike will need to monitor developments closely, as the long-term effects on global trade and economic stability could be significant.