Trump's Tariffs Take Effect: Global Reactions Follow

Donald Trump’s additional tariffs (what he called “liberation day”) on trade partners and economically struggling countries were announced yesterday, Wednesday, 2 April, and both countries and financial markets shifted in response. 

Here’s what you need to know about Trump’s dramatic tariffs and their effects:

Trump’s Tariffs in Detail (What Was Announced)

Global Tariffs:

• A 10% baseline tariff on all (universal) imports to the US will take effect on 5 April 2025. However, countries like the United Kingdom, Singapore, Australia, Turkey, Brazil, Colombia, New Zealand, El Salvador, United Arab Emirates, Turkey, and Saudi Arabia will only face the base rate.

• Additional tariffs will target specific countries, with a 20% tariff on goods from the European Union.

• Reciprocal tariffs on specific nations will begin on 9 April 2025.

China:

• The tariffs on Chinese goods will exceed 50%, with a new 34% tariff on top of previous levies.

Other Countries:

• UK: A 10% tariff was applied, and while the UK avoided a 20% rate, the tariffs could lead to economic strain, potentially impacting growth forecasts and jobs.

• South Korea: Will face a 25% tariff on exports to the US.

Moreover, traders and investors should note that the tariffs on Mexico and Canada announced earlier this year will still be implemented. 

How Did Countries Respond?

China

China was hit hardest by the tariffs, with the total levy on Chinese imports rising to over 50%. The Chinese government strongly opposed the tariffs, urging the US to cancel them, and warned that the move would harm global economic development and hurt US interests. China threatened retaliatory actions, including reciprocal tariffs, devaluing its currency, and restricting exports of rare earths. Moreover, the closing of the "de minimus" loophole, which allowed low-value goods to enter duty-free, would also negatively impact Chinese e-commerce companies like Shein and Temu.

United Kingdom

The UK may have been relieved that it faced only a 10% tariff instead of the expected 20%. However, the tariffs were still expected to negatively impact the UK economy, potentially leading to job losses and the need for tax hikes or spending cuts. This shows how global trade disruptions can affect even close allies.

South Korea

South Korea responded urgently, vowing an "all-out" response to the 25% tariff imposed on its exports to the US. The South Korean government recognized the significant impact on its auto industry, which relies heavily on the US market. The auto sector, in particular, was expected to see a drop in exports, which would hurt the economy.

Canada

Canada was exempted from the latest tariffs but still faced the continuation of 25% levies on steel, aluminum, and automobiles. Prime Minister Mark Carney vowed to respond with countermeasures, emphasizing that the US still maintained tariffs that punished Canada for its efforts to prevent fentanyl smuggling.

Mexico

Mexico, like Canada, was exempted from the new tariffs but still faced previous levies on steel, aluminum, and automobiles. President Claudia Sheinbaum stated that Mexico would not retaliate with tariffs but instead focus on a comprehensive program to address the trade imbalance.

Overall Global Impact

The overall reaction to the tariffs highlighted the risk of trade wars and the negative consequences for global markets. Most countries expressed concern that the tariffs would drive up prices for consumers, disrupt supply chains, and hurt growth. Many governments were quick to seek retaliatory measures, negotiate tariff reductions, or initiate dialogue with the US to avoid escalating the trade conflict further. (Source: The Guardian)

How Did the Global Markets React?

Perhaps unsurprisingly, in light of Trump’s tariffs and the strain they put on market sentiment and investor confidence, the market shifted in response. 

The Hang Seng index slid 2.4% following Trump’s announcement. US tech stocks like Nvidia and Tesla lost 5% and 7%, respectively, as Futures tied to the Nasdaq 100, Dow Jones Industrial Average, and the S&P 500 fell 3.19%, 1.95%, and 2.68%, respectively.

What Do Analysts Think?

While the long-term effects of this ongoing trade war remain uncertain, some analysts believe it will place additional strain on the already fragile global economy, which has yet to fully recover from the lingering effects of persistent inflation, hawkish rate hikes, record debt, and the COVID-19 pandemic.

Executive economist Takahide Kiuchi warns, "Trump's tariffs carry the risk of destroying the global free trade order the United States itself has spearheaded since the Second World War." Similarly, macroeconomist Antonio Fatas predicts, “This represents a drift of the US and global economy towards worse performance, more uncertainty, and possibly heading towards something we could call a global recession.” In addition, Olu Sonola, head of US economic research at Fitch Ratings, emphasizes, “This is a game changer, not only for the US economy but for the global economy,” and adds, “Many countries will likely end up in a recession.”

Still, only time will tell what actually lies ahead. 

Conclusion 

Trump's new tariffs are sending shockwaves through global markets and trade relationships, intensifying the ongoing economic strain. With significant retaliatory measures already on the table, the potential for a prolonged trade war looms large. While countries scramble to mitigate the impact, economists remain divided on how deep the effects will go. The world watches closely as the economic pressure continues to unfold.

*Past performance does not reflect future results