After weeks of prediction, global investors are finally seeing President Donald Trump’s “mutual” tariffs.
If the stock market response is the guide, the “liberation day” tariffs announced on Wednesday exceeded the worst fears.
The market has fallen as investors, from the US to Europe and Europe, absorbed the meaning of a sharp turn to protectionism by the world’s largest economy since the 1930s.
Futures tied to the US benchmark S&P 500 and the tech-heavy NASDAQ-100 can trade outside of normal market hours, but fell by more than 3% and 3.5% respectively, with Wall Street setting a major loss phase as they resumed on Thursday.
Japan’s benchmark Nikki 225 fell by 4.5%, while Korea’s Kospi and Hong Kong’s Hangsen each fell by more than 2%.
In Vietnam, the benchmark VN-Index suffered one of the worst days in history, plummeting over 6%.
“More aggressive than expected”
“The tariff hike was more aggressive than expected,” Lin Song, chief economist at Da Hua Academy at the Bank of Netherlands, told Al Jazeera.
“Many people were expecting a 10-20% tariff range. This kind of aggressive move could possibly risk retaliation from larger players, but smaller countries could choose to negotiate at a lower rate.”
Daniel Ives, an analyst at Wedbush Securities, a Los Angeles-based wealth management company, described Trump’s plans as “worst than the worst case scenario.”
Trump has announced a baseline 10% tariff on all imports into the US, but he has confirmed that dozens of other countries will be subject to much higher obligations.
The steeper rates apply to the US’s major trading partners and small economies, as well as both allies and rivals.
China, the US’s third largest trading partner, accounts for more than $430 million in US imports each year, but faces 34% tariffs.
Added to Trump’s previous tariffs on Chinese goods, the latest tariffs will raise the overall fee to 54%.
“In our view, the scale and speed of the new Trump administration’s additional tariffs and other measures against China are far worse than the market expected, but these events are consistent with our more cautious view,” said Lou, Nomura’s chief China economist.
The European Union is expected to be hit by 20% tariffs, with Japan and South Korea facing 24% and 26% of duties, respectively.
Some of the steepest rates have been applied to developing countries, such as Cambodia, Vietnam, Laos, Myanmar, Sri Lanka and Laos, which are facing 44-49% tariffs, faced with tariffs of 44-49%, including Cambodia, Vietnam, Laos, Sri Lanka and Laos.
Trump’s list included exemptions for a limited number of products, including semiconductors, oil and medicines.
“The numbers for these tariffs are worse than expected,” Deborah Elms, director of trade policy at the Hinrich Foundation in Singapore, told Al Jazeera.
“This will result in job losses in already poor and often vulnerable markets.”
EU and China will retaliate
While China and the EU, the world’s two biggest economies, have already committed to retaliating with trade measures, many small trade-dependent economies are seen to be reluctant to deal with them in ways that could exacerbate trade tensions.
After weeks of market volatility due to uncertainty over Trump’s plans, the key question is whether tariffs can be eased in negotiations between Washington and its trading partners.
“The announcement of tariffs does not rule out uncertainty, but we hope that it will place boundaries on how bad the economic impact is,” Brian Jacobsen, chief economist at Annex Wealth Management, told Al Jazeera.
“Including non-tariff barriers in the calculations has made tariffs higher than otherwise, and that is also the most difficult part to quantify, so perhaps we will leave the big door open to negotiations.
Gary NG, a senior economist at Hong Kong’s investment bank Natics, said that while he hopes US trading partners will tackle compromises, at least some of the measures are likely to be permanent.
“It’s likely that the US will maintain some of everyone’s duties regardless of what the transaction is,” Ng told Al Jazeera.
The seriousness of Trump’s tariffs seemed to surprise many investors, but there is room for stocks to fall further in response to the administration’s next move.
Jpmorgan and Goldman Sachs have the potential for Trump’s protectionist policies to tilt the US economy towards a recession this year at 40% and 35% respectively.
Veljko Fotak, an associate professor of finance at the University of Buffalo, said the market does not consider Trump’s latest announcement as the final word on tariffs.
“If that’s the case, the market will drop more dramatically, as this type of tariff regime effectively guarantees a recession. Long-term tariff policies remain uncertain. How will other countries respond? Will the US escalate?” Fotac told Al Jazeera.
“The markets have been forcibly responding, but if these tariffs continue, we see more downward corrections. As the trade war escalates, we see more dramatic movements.”