US President Donald Trump announced a wave of new tariffs on 2 April, which he branded ‘Liberation Day’, arguing they would help boost the US economy. Trump introduced a new baseline 10% US tax on goods from all countries and higher reciprocal tariffs for nations which the US government believe have high barriers to US imports. The US government is expected to impose the reciprocal tariffs on around 60 of the “worst offenders” from 9 April.
Market impact
The US tariff announcement is widely expected to worsen the global growth and inflation outlook. The sweeping tariff package came in at the high end of expectations and, according to analysts, will increase the effective tariff on imports to the US to between 20% and 25%.
Some analysts suggest that US economic growth could be reduced by 1% to 2% while inflation will move higher. This will be seen as a stagflation for the US economy. Tariffs on goods from the rest of the world should reduce export growth and will be a negative growth shock, with Asia and Europe most affected given the size of the proposed tariff rates.
On the back of the news equity markets moved lower, and bond yields have fallen. Markets are also now pricing in a much higher risk of a US recession and elsewhere with some banks now changing their view to officially call for a US recession in their forecasts.
As well as the direct impact on economic activity, business confidence is likely to continue to be severely impacted by the ongoing uncertainty over the outlook. Some of this could be reflected in company earnings statements in the US and elsewhere over the coming weeks as first quarter numbers begin to be reported. It is hard to see why equity markets would reverse recent moves when the global trading system has just been upended - further equity losses seem to be likely.
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