First, plz allow me to express gratitude for the comments on the previous post, where we shared our views on the impact of tariffs. 🙏
Each one of the opinions is wonderful and inspiring. ✨
And I want you to see this amazing comment that predicted the surge on Wednesday.
At the end of the regular trading session, the NASDAQ(IXIC.US) gained by ... how much?
Pretty cool, right?😎
End of chit-chat.
Let's go down to what matters for our pockets.
About Trump's Tariff
In a move that left many bemused, Trump's Wednesday announcement of the reciprocal tariff plan was marked by its arbitrary and complex nature.😵💫
The base tariff was set at 10%, applicable to all imported goods, and will take effect on April 5. It would mean that even the most remote, uninhabited islands in Antarctica would have to pay tariffs to the US.
However, 10% would arguably be a figure that the market could barely accept.
For bigger trading partners, country-specific reciprocal tariffs were as follows:
34% for China,
24% for Japan, and
20% for the European Union, replacing the blanket 10% tariff.
These tariffs will be effective from April 9, allowing time for last-minute negotiations. 🕰️
The 10% base tariff is non-negotiable, while the country-specific tariffs are designed to be adjusted through negotiations.
Notably, Canada and Mexico were excluded from the "reciprocal tariffs" regime, possibly to pave the way for a new North American trade agreement.
The list for most countries are as follows:
How Were the Tariffs Calculated?
Here's also an interesting thing. 🤔
I've been staring at the table on the first page for a long time and suddenly realized that the Trump team seems to have invented a math formula.
The tariff rates, expected to be derived from a sophisticated formula, were instead calculated using a straightforward method:
Step 1: Calculate the trade surplus: First, look at the trade surplus between two countries (a trade deficit for the US means it imports more than it exports). For example, Vietnam exports $113 billion to the US and imports $11 billion from the US, so the surplus is $113 billion - $11 billion = $102 billion.
Step 2: Divide by the export value: Surplus ÷ export value = "unfairness coefficient." For example, Vietnam: $102 billion ÷ $113 billion ≈ 90% (meaning the US claims Vietnam is taking 90% advantage).
Step 3: Pretend to be generous and give a discount: Coefficient ÷ 2 = final tariff rate. So: 90% ÷ 2 = 45% ≈ 46%.
Voilà!
So, China has a surplus of $295.4 billion, an export value of $438.9 billion, a surplus rate of 67% → 34% tariff...?
It makes sense!
What a surprise hhhhhhhhh. 😂
Market Reactions
The initial outline of Trump's tariff policy seemed to trigger irrational market sentiment, as the detailed tariffs caused unease:
US stock futures fell sharply, with declines expected in Thursday's early night session (US Eastern time).
Gold prices reversed from a decline to rise modestly, with further gains anticipated.
The US dollar index dropped, with the decline intensifying after the market opened on Thursday.
Goldman Sachs' trading desk reported continued sell-offs in tech stocks, with hedge funds aggressively shorting macro products.
Asia-Pacific markets opened with significant losses, with Vietnam's stock market dropping 6% and the Nikkei 225 index falling over 4% at one point.
Global markets showed signs of distress, with expectations of increased volatility.
The potential for retaliatory actions from other countries added to the uncertainty, suggesting a turbulent trading day ahead.
Potential Impacts on Economy, Fed Rates and Stocks
Look into history, we will be able to find many similar situations.
The Smoot-Hawley Tariff Act of 1930, which led to a 66% drop in international trade volume and the onset of the Great Depression, is often cited as one of the most ill-advised economic decisions in US history.
In response to such historical lessons, countries worked to reduce tariffs, culminating in the General Agreement on Tariffs and Trade (GATT) in 1947 and the formation of the World Trade Organization (WTO) in 1994. According to the Tax Foundation, the average US tariff rate fell from 10.3% in 1946 to 1.8% in 1999, maintaining around 1.5%.
Globalization back then thrived, thanks to cheaper connectivity costs. 🌐
But, it makes me regret to say, everything has its own endogenous cycle. The very recent round of globalization launched after WWII has probably been ended during Trump's presidency started in 2017.
The first to suffer will be market liquidity.💧
Following Trump's Wednesday announcement, the likelihood of an imminent Federal Reserve rate cut decreased as the tariffs' inflationary impact became apparent.
The implied probability of a 25-basis-point rate cut in May stays at 19% (dropped to 13% at one point this morning in Riyadh), while the probability of no rate cut before the end of June rose from 24% to 26.7% (once rose to 31%).
However, traders still believe the Fed will resume rate cuts by the end of 2025. Fed Governor Kugler noted that the tariffs could prolong inflation more than expected.
The market is now awaiting news of further negotiation.
Even if Trump's tariffs are not as severe as feared, their unpredictability could still generate significant market tension by causing uncertainties worldwide.🌐⚠️
