Stocks slid on Trump’s reciprocal tariffs tango; Gold wobbled

·       US imported goods worth $3 trillion (annual) may attract almost 27.5% weighted average tariffs under a reciprocal tariffs plan against 2.5% earlier

·       This may push the US economy towards stagflation and a synchronized global economic slowdown

·       Trump may be now looking for a face-saving exit and may postpone the implementation of reciprocal tariffs, slated to be effective from April 9

·       Trump is open for tariff reconciliations rather than protracted confrontations amid the ongoing capitulation of Wall Street and the political compulsion of Main Street

On late Wednesday, April 3, 2025, all focus of Wall Street and also Main Street was on Trump’s so-called Liberation Day announcement about reciprocal tariffs. On early Wednesday, Wall Street Futures were almost flat, recovering from the earlier Trump tariff war panic low on hopes of a less hawkish stance or liberal tariffs by Trump on the Tariff Liberation Day. Also, the upbeat ADP Private Payroll report card helped amid fading concern of an all-out Trumpcession. Wall Street also got a boost as Tesla jumped after Trump confirmed that Musk will step back from the current role as DOGE head.

On Wednesday, in the White House Rose Garden ‘Circus Party’ like dramatic Tariff Liberation Day celebration event, megalomaniac Trump first announced a 10% basic (minimum) tariff on all US imports. The market expected it as 20% and thus there was a risk trade briefly; Wall Street Futures surged, while Gold slipped. But all reversed soon after Trump announced the full list of additional reciprocal tariffs on virtually almost every other country of the world, starting from China at 34% (on top of existing 20-30%), EU 20%, Vietnam at 44%, Japan 24%, India 26% and South Korea 25%. Oil plunged because of the concern of synchronized global recession including the Trumpcession.

The overall weighted average of Trump’s reciprocal tariff may be now around 25-30% on around $3.1 trillion of US imports annually. The 10% basic US import duty (tariff) will be applicable from 5th April 2025 on all US imports and additional country-specific ad valorem duty is scheduled to start from April 9, 2025. Overall, the reciprocal tariff average of 28% is higher than the market expectations of 20% and thus Wall Street Futures stumbled

Gold also slid early Thursday as higher tariffs are positive for USD and negative for Gold. Also, the progress of the Ukraine and Gaza war permanent ceasefire is negative for Gold. But the increasing concern of Trumpcession as a result of the Trump trade war tantrum and the increasing probability of three Fed rate cuts in 2025 instead of one or two is also positive for Gold. The market is now assuming the Fed may cut thrice rather than twice or once in 2025 (despite stalled core disinflation) to prevent an all-out potential US recession caused by the Trump policy tantrum.

But overall, Trump may have accelerated the negotiation process on tariffs and counter-tariffs by his tango-Charlie approach to reciprocal tariffs. Trump is open to starting or accelerating negotiations and he may eventually postpone the implementation of the reciprocal tariffs from the scheduled 9th April to 1st July, 2025.

After much speculation, on April 2, 2025, US President Trump announced a comprehensive overhaul of U.S. trade policy, introducing a series of tariffs under the banner of "Liberation Day." This initiative aims to address what the Trump administration describes as longstanding trade imbalances and to promote domestic manufacturing.

On April 2, 2025, President Donald Trump formally announced his Liberation Day reciprocal tariffs and a comprehensive overhaul of U.S. trade policy, introducing a series of tariffs under the banner of "Liberation Day." This initiative aims to address what the administration describes as longstanding trade imbalances and to promote domestic manufacturing. Trump boasted it as a historic policy initiative to regain America’s ‘Golden Age & economic independence’. On Liberation Day, Trump introduced a two-tiered tariff structure aimed at addressing perceived imbalances in global trade. Trump declared it a national emergency and said the new taxes are needed to erase a trade deficit between the U.S. and other countries, ranging from China to Cambodia and also the EU.

Overview of the Trump Liberation Day Tariffs policies- The Liberation Day Reciprocal Tariffs consist of two primary elements:

·       Universal Baseline Tariff: A minimum 10% tariff will be imposed on all imported goods into the US from any country effective April 5, 2025. This measure applies broadly, with few exceptions. This basic customs/import duty (tariff) is intended to establish a minimum level of protection for American industries across the board.

·       Country-Specific Reciprocal Tariffs: In addition to the baseline tariff, higher import duties (tariffs) have been assigned to around 60 countries, based on the Trump admin’s assessments of their tough trade practices, alleged currency manipulation, application of undue state subsidies and other unfair trade barriers. These countries have been identified as having significant trade surpluses with the U.S. or imposing high tariffs and non-tariff barriers on American exports. These tariffs, ranging from 17% to 49%, are set to take effect on April 9, 2025. Notable examples include:

v China: An additional 34% tariff, resulting in a total effective rate of 54% when combined with pre-existing 20% import duties

v Vietnam: 46% tariff

v European Union (EU): 20% tariff

v Japan: 24% tariff

v India: 26% tariffs

v Cambodia: 49%

v Vietnam: 46%

Trump described these reciprocal tariffs on various countries as ‘kind’ (liberal) noting that these are calculated at roughly half the rate, the equivalent of the tariffs and various trade barriers, the U.S. claims these countries impose on American goods. The methodology appears to involve assessing trade deficits and dividing them by a country’s exports to the U.S., then halving the result to determine the final tariff rate. For example, the Trump admin (USTR) shows Chinese tariffs on US goods including currency manipulation and various trade barriers is 67%; against this, the US is imposing 34% as reciprocal tariffs.

Rhetorics-Rationale and Objectives of Trump’s New Tariff Policies

Trump narrated the reciprocal tariffs as a response to decades of what he called economic exploitation by both allies and adversaries. In his Rose Garden epic speech, he stated, “For decades, our country has been looted, pillaged, raped, and plundered by nations near and far, both friend and foe alike.” He argued that trade deficits represent a “national emergency” threatening U.S. security and industrial capacity, citing reliance on foreign goods like antibiotics, electronics, and automobiles as critical vulnerabilities. Trump made an election campaign-like event for his Tariff Liberation Day celebration.

Sectoral Exclusions (exemptions): Certain goods like automobiles, steel, aluminum, copper,  specific rare earth materials/minerals, pharmaceuticals, energy, semiconductors, and lumbers are excluded if they are covered under Section 232 national security tariffs.

Canada and Mexico are exempt from new reciprocal tariffs (under USMCA)

No new tariffs were placed on Mexico and Canada for now, the United States' two largest trading partners, sparing them from the minimum 10% baseline tariff added to most countries Wednesday. Goods and products that fall under the United States–Mexico–Canada (USMCA) trade agreement are still mostly exempt from tariffs. Automotive exports will still be subjected to a tariff set to go into effect on April 3, while steel and aluminum will still be subject to a previously imposed 25% tariff. Notably, Canada and Mexico are exempt from the new reciprocal tariffs for now, though existing 25% tariffs on their auto imports (effective April 3) and steel/aluminum remain in place. Goods like steel, aluminum, and autos subject to prior sector-specific tariffs are not double-taxed under the reciprocal rates, except in China’s case, where the 34% reciprocal tariff stacks atop earlier duties.

The stated goals of the US Liberation Day trade policy include:

·       Revival of U.S. Manufacturing Sector & Jobs: By increasing the cost of imported goods, the Trump administration is aiming to incentivize domestic production and bring back manufacturing jobs to American workers. Trump pointed out almost 90000 factories were closed in the IS in the last few decades after the NAFTA agreement and China’s inclusion in the WTO & global trade.

·       Reduction of Trade Deficits: The reciprocal tariffs will target countries with large trade surpluses, aiming to level the playing field.

·       Revenue Generation to Reduce Fiscal Deficit: Trump has suggested that tariff revenue could fund tax cuts or even replace income taxes, though economic projections on this are uncertain.

·       Economic Independence: The policy seeks to reduce U.S. dependence on foreign supply chains, aligning with Trump’s “America First” agenda.

The Trump administration argues that large and persistent U.S. trade deficits are partly due to non-reciprocal trade practices, including disparate tariff rates and non-tariff barriers that hinder U.S. exports. The Liberation Day reciprocal tariffs are designed to rectify these imbalances and support U.S. manufacturing industries and jobs.

Implementation and Constitutionality:

The tariffs were enacted under the International Emergency Economic Powers Act of 1977, which allows the US President to declare a national emergency and impose economic measures without Congressional approval. This follows Trump’s prior use of the same authority for tariffs on steel, aluminum, and goods from Canada, Mexico, and China. Also, the China Trade Deal Phase One and the USMCA trade deal were done under a similar executive order by Trump.

The Liberation Day tariffs will be additive, meaning that imports will face both the universal tariff of 10% plus the specific reciprocal tariff levies targeting each nation. The reciprocal rates will become effective at 12:01 a.m. on April 9 (ET). That's in addition to the baseline 10% tariff, which goes into effect at 12:01 a.m. on April 5 (ET).

Trump’s Liberation Day tariff policy announcement has sparked widespread debate over its potential impacts.

Domestic (US) Effects: Trump tariffs could raise consumer prices significantly, with estimates suggesting a $660 billion annual indirect tax burden on each American. JPM analysts predict a 2% increase in the Consumer Price Index (CPI) and a heightened recession risk (up to 35% in some models). U.S. manufacturers reliant on imported materials may also face higher input costs, potentially offsetting gains in any potential domestic production. Earlier the market was expecting around 1% higher inflation and a $550 higher cost of living per American on average under a moderate Trump tariff tantrum.

Global Trade: The Trump trade war policy threatens to ignite an all-out global trade war, with countries like China, the EU, Canada, and Japan signaling retaliatory measures. China’s Commerce Ministry vowed to “safeguard its rights,” while EU Commission President Ursula von der Leyen (VDL) indicated readiness for “firm countermeasures.” Canada has also promised a “strong response,” and Brazil is considering World Trade Organization (WTO) action.

US Support and Criticism for Trump’s Liberation Day Global Trade War Policy

Supporters, including United Auto Workers (UAW) President Shawn Fain, argue that the tariffs will protect American jobs and force companies to invest domestically. House Speaker Mike Johnson acknowledged potential short-term disruptions but expressed confidence in long-term benefits for Americans; i.e. short-term pain for long-term gain narrative in line with his political boss President Trump.

Critics, including Senate Minority Leader Chuck Schumer and economists from various institutions, warn of parallels to the 1930 Smoot-Hawley Tariff Act, which deepened the Great Depression. They argue that the tariffs will hurt consumers, strain alliances, and disrupt supply chains built over decades. Various US Democrat leaders (opposition party) called Trump’s draconian tariff policy move “irresponsible,” predicting higher costs for Americans. They termed the so-called Tariff Liberation Day as ‘Recession Day”.

In summary:

The "Liberation Day" tariffs represent a significant shift in U.S. trade policy, emphasizing protectionism and domestic industry support. While the administration argues that these measures will correct trade imbalances and bolster the economy, the potential for retaliatory actions and global economic repercussions suggests a complex and uncertain path forward.

Trump’s Liberation Day Reciprocal Tariffs, announced on April 3, 2025, on the 101st Day of Trump 2.0 is in line with Trump’s election promise, starting a serious global escalation of his trade agenda, aiming to reshape the U.S. role in the global economy. Trump is trying to leverage the US consumption and huge merchandise import bill of around $3.5 trillion. While the policy aligns with his long-standing emphasis on tariffs as a tool for economic nationalism, its success or failure hinges on uncertain factors: the resilience of the U.S. economy, manufacturing industries, the response of trading partners, and the tolerance of American consumers for higher prices.

Trump's Liberation Day tariffs policy represents a significant escalation of his first term and long-standing trade war policy, aiming to address perceived trade imbalances. However, they also risk triggering a broader trade war and impacting global economic stability. Trump’s trade war policies may also affect global trade by around 1% and may also cause at least 0.5% of real GDP if implemented at face value.

Trump’s ‘liberal’ tariffs will apply to over 180 countries, with no exemptions, except for Canada and Mexico, which maintain their existing trade terms with the USMCA. A baseline tariff of 10% will be applied to all US imports, with higher rates for countries seen as obstructing U.S. exports/goods. For example, China faces a total (cumulative) tariff of 54%, while the EU is subject to a 20% tariff. India will see a 26% tariff rate, reflecting the U.S. assessment of India's tariffs and trade barriers on American goods. Overall, the weightage average tariff will be around 27.5% (~25%-30%) if these tariffs are applied at face value. This will be significantly higher than the earlier 2.5% (~2%-3%).

These tariffs are import duties to be paid by US importers ordering to foreign exporters and will be eventually borne by US consumers. No exporter will pay Trump tariffs to any US ERS (External Revenue Agency) contrary to Trump’s rhetoric. This will eventually increase the cost of imported goods and imported inflation. The US imported around $3.1 trillion worth of goods in 2023, almost 11.5% of nominal GDP and almost 49% of Personal Consumption on Goods. Higher imported inflation will eventually affect discretionary US consumer spending, resulting in a stagflation-like scenario.

No doubt, Trump needs higher revenue to fund his deficit spending like income tax cuts. Trump’s reciprocal tariffs policy is quite right for countries like Tariff King India, which should lower tariffs universally for its own broader economic benefit rather than benefitting some domestic producers for political funding. Also, all nations should impose a single rate of basic tariff like 10% rather than multiple slabs on multiple types of goods.

Thus Tariff Man Trump is trying to disrupt global trade and the economy by his bellicose tariff/trade war policy. Trump is forcing all the major US trading partners to sit at the negotiating table and impose a common universal basic tariff like 10% on each other for a level playing ground. If Trump can fix this tariff inequality through his trade war rhetoric, then Trump may need to impose indirect sales taxes like GST or VAT in the US at the Federal level to collect higher revenue to fund deficit spending.

On early US Thursday, April 3, 2025, Trump wrote in his Truth and Twitter post:

“THE OPERATION IS OVER! THE PATIENT LIVED AND IS HEALING. THE PROGNOSIS IS THAT THE PATIENT WILL BE FAR STRONGER, BIGGER, BETTER, AND MORE RESILIENT THAN EVER BEFORE. MAKE AMERICA GREAT AGAIN!!!”

Trump is referring to America as the tariff patient here as the US is itself the worst sufferer of his retaliatory tariffs. Almost all other countries can trade with each other without the US despite the US being the largest consumer in the world.

Conclusions:

Trump may be creating a trade, tech & cold war between the US and the rest of the world to Make America Great Again. Trump tariff tantrum may not only cause US stagflation but may also create a synchronized global economic slowdown and even an all-out recession just in 5-6 years after the previous cycle of Global recession triggered by COVID. Trump is not respecting his trade deal with China in 2020 and also the USMCA trade deal (FTA) with Mexico and Canada. Now Mexico may join BRICS, while the US may also exit from NATO. Eventually, Trump’s trade and geopolitical policies are paving the way for China and Russia to consolidate their global influence and BRICS may become a NATO-like organization in the coming years.

It’s the US importers and consumers, who have to bear the brunt of higher Trump tariffs, not the exporters despite the rhetoric of US ERS (External Revenue Service) to collect Trump Tariffs from exporters. In such a situation, all targeted exporters may also stop shipping goods to the US and will eventually divert goods to other destinations. China has been preparing for such a moment for the last 20 years to reduce the US and Europe's dependency on trade amid never-ending geopolitical fragmentations. We may see the biggest-ever geopolitical shift in the world as China is advancing fast to replace the US as the number one superpower, both financially and militarily.

Trump also realized that the Fed is not going to cut rates soon and thus he may be trying to force a recession-like economic scenario to force the Fed to resume the rate cut cycle sooner rather than later. The dealmaker Trump is using tariffs and US consumption as leverage to make concessions in trade and also forcing various US/foreign companies to invest in the ‘Liberated US” under his ‘Golden Age’.

Tariff Man Trump often talks about China’s huge trade surplus of over $1 trillion with the US. This is because the US and also other countries like India are using China’s manufacturing hub as a cheaper outsourcing to maintain the comparatively lower cost of living. China has efficient industrial and logistical infra on a huge scale. The US imported Chinese goods as a compulsion as it had no alternative either domestically or even externally. China is not forcing the US to buy its goods at gunpoint. China now accounts for 15% of all US imports directly and another 10% indirectly through Mexico proxy.

Trump has to compete with China by developing comparable industrial and logistical infra including high-speed railway networks across America. Trump can’t simply replace Chinese efficiency in goods manufacturing by imposing draconian tariffs and waging tech & cold war. But Trump’s logic of reciprocal tariffs on countries like India is a good idea. After China, Trump or the US is now trying to take some share of Indian consumption, as India’s middle-class population is almost equal to the entire US population.

More Tariffs, More imported inflation and recession or stagflation or even depression

The US may be downgraded by Global rating agencies like Fitch, S&P, and also Moody’s amid an increasing probability of a US government shutdown and debt limit drama coupled with stagflation or even an all-out recession amid Trump policy tantrums.

Bottom line:

Trump is risking the US isolation in global trade or even on the geopolitical front. And the capitulation of Wall Street and the concern of Real Street may force Trump to go for negotiation rather than protracted confrontations with almost every other country in the world, be it friend or foe.

The question is now who blinks first-Trump or Xi?

Trump may blink first and postpone the implementation of his reciprocal tariff threat from April 9 to July 1. Trump is now looking for some face-saving exit/pause after his bellicose tariffs policy. President Trump may be waiting for a phone call from his ‘smart Indian friend’ PM Modi by the weekend to provide a ‘last chance’ for the rest of the world to have a trade deal for a common tariff across the board: one world, one tariff for the sake of MAGA (Make America Great Again) and also MWGA (Make World Great Again).

Market Wrap:

On Mid Thursday, Wall Street Futures recovered slightly briefly on hopes of Trump tariffs reconciliations rather than protracted confrontations after Trump’s conciliatory tweets. Overall, the S&P 500 slid over 4%, wiping out nearly $2 trillion in market value and pushing it back into correction territory of more than 10% fall from the top.

The Dow Jones (DJ-30) plunged over 1,400 points and the Nasdaq-100 tumbled more than 5% amid the concern of an imminent stagflation or even an all-out recession. Also, China's downgrade by Fitch has affected the risk trade sentiment. Tech stocks led the sell-off, with Apple plunging 9% and Nvidia dropping 7%, while major retailers like Nike and Dollar Tree suffered double-digit losses. Dow Jones (DJ-30) may plunge by another 2000 points to 39000 levels by the next few days, if Trump fails to act and postpone the reciprocal tariffs rhetoric, paving the way for starting negotiations.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42300) now has to sustain over 42500 for a further rally towards 42700/42900-43200/43500 and 43700/44050 and 44250/44400-44500/44800 and 45000/45200-45300/45500 and even 45700/45800-45900/46000 in the coming days; otherwise sustaining below 42400, DJ-30 may again fall to 42000/41500-40900/39500 and 38700-36100 in the coming days.

Similarly, NQ-100 Future (19900) has to sustain over 20200-21050 for a further rally to 21300/21500-21700/21850 and 22050/22200-22350/22500 and 22700/23000-23300/23500 in the coming days; otherwise, sustaining below 21000, NQ-100 may again fall to 20900/20600-20400/20150 in the coming days.

Also, technically Gold (CMP: 3060) has to sustain over 3035/3065 and 3075-3100 for a further rally to 3125/3150-3200/3225; otherwise sustaining below 3065-3065-3045, Gold may again fall to 2990 and 2965/2925-2900/2880 and 2850/2835-2810/2780-2780 and 2745/2725-2695/2665 and further 2635/2600-2585/2560 in the coming days.