The blow is bad, but not as terrible as the uncertainty he’s layered on top of stocks, companies and countries. That’s what could really hurt investors.
Chanticleer
We should be very wary of getting too excited about the market’s short-term reaction to the extraordinary package of tariffs US President Donald Trump finally announced on Thursday.
History is full of examples of investors giving dud first takes – Lehman Brothers collapsed on a Monday in September 2008, and the S&P 500 finished the week higher as the market foolishly bet the government’s program to buy busted mortgage securities would protect the broader economy.
Wall Street rose before Trump stood up in the White House’s Rose Garden to announce that he would impose a baseline tariff of 10 per cent on all countries, but higher country-by-county tariffs, including 34 per cent on China, 20 per cent on the European Union, 24 per cent on Japan, 32 per cent on Taiwan, 25 per cent on South Korea, 26 per cent on India and 46 per cent on Vietnam.
But by the time his rambling press conference ended an hour later, Wall Street futures were sharply lower, down 1.6 per cent.
A few hours later, S&P 500 futures were down more than 3.6 per cent, while Nasdaq futures were down almost 4 per cent. The ASX 200, one of the first major markets to trade following the Trump announcement, crashed 2 per cent in early trade.
Again, we should be cautious about these emotional reactions, particularly in volatile futures markets. But investors should realise that there is a risk that the fall in markets could become even more dramatic as investors realise the scale of what has just happened.
As Neil Dutta, head of US economic research at Renaissance Macro, said, “It’s surprising stocks are not down even more. Perhaps investors assume cooler heads prevail later. I would not hold your breath.”
For the past few weeks, we have treated tariffs as mainly a financial market event. But let’s zoom out and consider what Trump has done here.
Depending on how you measure it, this is the biggest hit to global trade in somewhere between 50 years and a century, bringing to an end the long period of globalisation that has supported financial markets and pushed down interest rates for decades.
What’s more, Trump has hit the world with a spaghetti of tariff policies that will increase uncertainty, not reduce it.
Uncertainty persists
Markets had been braced for a 20 per cent baseline tariff, so the 10 per cent baseline is welcome. But the sheer size of the impost on some of America’s biggest trading partners was much worse than feared, particularly for Japan, Taiwan and China.
Indeed, the 34 per cent reciprocal tariff on China appears to come on top of the existing 20 per cent tariff Trump imposed a few weeks ago, suggesting a total tariff of 54 per cent on one of America’s most important sources of imports.
US research firm Evercore estimates the average US tariff across the economy now sits at 29 per cent, up from about 2 per cent at the start of the year. That is way beyond the worst expectations investors had 24 hours ago.
On top of that, there’s a distinct lack of clarity about how long the tariffs will last. US Treasury Secretary Scott Bessent – who loves to talk about his 35 years as a hedge fund investor – spoke to Bloomberg shortly after the Trump press conference, where he again suggested that the tariffs were a high watermark that could be reduced over time.
“I think the market could have certainty that this is the number, barring retaliation. So we’ve got a ceiling, and then we can see if there’s a different floor,” Bessent said.
Bessent still seems determined to convince investors that Trump will come back from the brink, but he must know that by making these claims he is layering uncertainty on top of uncertainty. And that could be the most dangerous thing of all for the US and global economies.
Think about it. The tariffs announced are unquestionably much worse than the market expected, but at least if we had come away from Trump’s Liberation Day announcement with certainty about the size of the tariffs and the length of time they were going to be applied for, markets, nations and businesses would be able to start to figure out.
Instead, we have confusion. We have the Treasury secretary, standing in the same Rose Garden, hinting that there is room for negotiations. We have the White House suggesting that the tariffs will apply until Trump thinks they’re no longer needed. We have countries all over the world trying to figure out how they will spend the next seven days before the reciprocal tariffs kick in on April 9. Do they beg for an exemption? Consider retaliation?
This uncertainty is painful for markets, which will likely need weeks or even months to digest the tariff movements. But consider how painful this is for a business with any sort of exposure to global trade.
Ben Inker, co-head of asset allocation and portfolio manager at Jeremy Grantham’s investment firm GMO, says it’s been painful trying to predict where the tariff story could go over the next week.
“But tearing up and rewriting a paper is a matter of a few hours of work. Tearing up and rebuilding a supply chain or a capital stock is the work of years and huge sums of money, and getting things wrong could result in the destruction of entire businesses,” he says.
Uncertainty, Inker says, stops business investment – not just in existing projects, but in new ones. So the risk is not just that capital stops flowing for a few months while this uncertainty persists, but that the impact of the lack of investment is felt on activity and profits for years.
Fears of a US recession
That US inflation will rise and growth will slow because of these tariffs is certain. But it’s the risks to business investment and employment that will stoke fears of a US recession.
Inker’s view is that US stocks – which still make up about 70 per cent of the global sharemarket, according to Jacob Mitchell, chief investment officer at Antipodes Partners, and therefore a massive chunk of your superannuation savings – are in the firing line.
There are simply few ways to escape some sort of pain, Inker argues.
“If a company’s manufacturing occurs outside the US, but its sales are US-centric, as they are for Apple, that is a problem. If a company imports intermediate goods for its production, as happens with GM, that is also a problem. If a company’s expansion plans involve lots of imports – true for everyone expanding cloud and AI capabilities – that is, again, a problem.”
You can see investors trying to make those calculations in real time.
This brutal hit to tech stocks in after-hours trade – Apple down 6.3 per cent, Nvidia down 5.4 per cent, Amazon down 5 per cent, Tesla down 5.6 per cent – reflects the fact that the tariffs on Taiwan and China are much, much higher than anticipated, even if Taiwan’s chip exports appear to be exempt.
Moreover, this is new territory for tech stocks.
Antipodes’ Mitchell makes the point that the damage to the magnificent tech stocks in the March quarter wasn’t caused by tariff concerns, but by the sudden arrival of Chinese start-up DeepSeek. “So actually, some of the damage from tariffs is yet to come,” he says.
Another example of the impact of uncertainty came from shares in a US retailer called Restoration Hardware plunging almost 26 per cent in after-hours trade after it warned before Trump’s announcement that it would be hit by “uncertainty caused by tariffs, market volatility and inflation risk”.
Following Trump’s announcement, investors took the company at its word and ran for the hills.
Inker suggests investors ask two questions as they examine stocks. Could the company suffer a permanent drop in its profits from tariffs? And, if a recession takes hold, could a company suffer a hit to profits big enough to cause it to go under?
A few days ago, the latter might have sounded like an extreme question, and it still probably is. But like it or not, Trump just changed the world, and anything seems possible.
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