(Reuters) – U.S. President Donald Trump further escalated a trade war on Wednesday by announcing he would impose reciprocal tariffs to match duties put on U.S. goods by other countries.
“It’s our declaration of independence,” Trump said at an event in the White House Rose Garden. “We will establish a minimum baseline tariff of 10%.”
Rates for China would be set at 34% for China, while the European Union and Japan would face 20% and 24%, respectively.
MARKET REACTION: S&P 500 futures reversed gains and fell to a 1.6% loss, suggesting investors expect deep losses when Wall Street opens on Thursday. Nasdaq futures, reflecting tech companies such as Apple, Nvidia and Microsoft, were down 2.3% after gaining earlier on Wednesday.
COMMENTS:
JOHN HARDY, CHIEF MACRO STRATEGIST, SAXO BANK, COPENHAGEN:
“I was surprised how negative or how hefty these are. Of course, this is going to result in lots of tit-for-tat negotiations – what concessions can be made to get these down, whatever leverage the U.S. exert to get other countries to do something to get these tariff levels down, whether it’s defense considerations in Europe and/or Japan. China, I suspect, sticks. So the Chinese response could be quite interesting.”
“This is pretty negative relative to expectations…it makes sense to see the market reaction.”
Safe haven trades in the wake of the announcement will include the “Japanese yen most definitely, repatriation of capital, into Japan, falling U.S. rates, definitely. So Treasuries can be a safe haven, especially at the short end of the yield curve, I think would be the two chief trades. But even the longer-term Treasuries could do well.”
“If Republicans keep banging on about tax cuts, I wonder if that’s (longer-term Treasuries) a good bet. But for now, it seems the direction is clear. So the safest of safe just for parking things, gold, and especially short-dated U.S. Treasuries, and then maybe a wild card there for longer-term stuff as well.”
WALTER TODD, CHIEF INVESTMENT OFFICER, GREENWOOD CAPITAL, GREENWOOD, SOUTH CAROLINA
“We’ve just got one side of the story, which is what we’re doing. And the other side of the story is how other countries respond to what we’re doing. So that’s a big component to how the market ultimately digests what is being said.”
“How individual countries or blocs of countries respond to what is being said is the other piece of the puzzle…depending on what other countries do, it still feels to me like the market wants to use this 5,500 level (on the S&P 500) as a springboard.”
JASON BRITTON, CHIEF INVESTMENT OFFICER, REFLECTION ASSET MANAGEMENT, CHARLESTON, SOUTH CAROLINA
“I see this as net positive. For the most part, these tariff levels are just the starting point for further negotiations. And Mexico and Canada are still exempt from further tariffs. I think the market will settle down and begin to parse the details and realize it’s at worst a mixed bag of news.”
“I’m looking at the big technology companies that are sitting on enormous piles of cash. If they’re going to get pinched by this retreat, I’m a buyer on weakness. It’s just the market over-reacting, and I’m very happy to take advantage of that.”
JOHN LUKE TYNER, FIXED INCOME ANALYST, APTUS CAPITAL ADVISORS, FAIRHOPE, ALABAMA
“The market was hopeful for a softer approach… from here now I imagine it’s a negotiation back and forth with many of these countries.”
“Many other countries are using tariffs against the U.S., and I guess from Trump’s perspective and from many people’s perspective, it’s unfair for us to provide more free trade when we’re getting pillaged by some of the other countries…what it sets in stone in my mind is that these aren’t necessarily temporary tariffs, it looks like they’re here to stay.
“The White House and the staff that’s making these decisions behind closed doors is 100% aware of the policies that they’re putting in place and at least the rhetoric has created a slowdown in spending, both at the consumer and at the corporate level. It’s created bad sentiment on the future, which slows down things. You’ve seen slowdowns in projects, capital projects, CEOs’ commentary on markets and the economy.” “We have 120 plus percent debt to GDP. You cannot squash the economy and risk killing tax receipts and risk killing the market. The market is the economy in so many ways and so the big risk of all of this is that if you really mess up the economy in a spot, even if it’s short term, what’s debt to GDP go to in that environment? What does fiscal deficits go to if you have a 10%, contraction, or 5% contraction, in a lot of different economic and GDP type of indicators, that’s where things get scary.”
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, N.C.
“When the press conference first started the President said tariffs would start with a 10% baseline across the board. That was better than expected, which was why we saw futures rallying. But once he got to specifics and started giving examples which were significantly higher than 10%, that’s when futures turned around and went negative because it was worse than expected.”
“In the short run tariffs are going to increase costs and reduce corporate profits. If we have a reshaping of the economy, I’m sure markets will have a different judgment but the short term knee-jerk reaction is to the initial price hikes.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“The tariffs are a little bit on the hefty side.”
“We’ll just have to wait and see if this trade war ends the way the administration would like it to…It depends on our trading partners now. Are they going to come to the table and negotiate or are they going to retaliate?”
“The consequences of inflation will be felt, and that presents a dilemma for the Federal Reserve now, even though Chairman Powell has said that inflation from tariffs would be transitory…The inflation effects could get worse and we could be headed toward recession.”
“The markets have been under severe pressure and you might say they are somewhat in an oversold condition… I think the markets could rally.”
FREDERIQUE CARRIER, HEAD OF INVESTMENT STRATEGY, RBC WEALTH MANAGEMENT
“Europe will be subjected to steep reciprocal blanket tariffs, 20%, towards the high end of what had been feared by market participants.”
“The calculation of tariffs includes sales tax (VAT) a tax which is imposed on both domestically and foreign products and do not discriminate against US products. With the VAT being an important source of governments’ revenue, European member states can offer little flexibility. Profit taking in European equity market may well continue tomorrow.”
“However, while unhelpful to economic growth, the impact of tariffs on European economies is unlikely to be too painful, simply because Europe does not trade intensively enough with the US…it could be greater depending on how the situation evolves, how the EU responds, and how badly tariffs hurt business and consumer confidence.”
“We expect the EU to retaliate swiftly. It had announced specific targeted tariffs on the U.S., but delayed their implementation. We would expect them to be applied in short order.”
(Compiled by the Global Finance & Markets Breaking News team)
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