President Donald Trump and his team outlined a strategy to leverage exorbitant tariffs as a bargaining tactic, aiming to compel countries to negotiate new trade agreements while easing restrictions, excluding China. However, Trump’s announcement of a 90-day suspension on “reciprocal” tariffs – which were never truly reciprocal – leaves a tight timeframe for his administration to navigate complex discussions with several nations keen to negotiate.
Market reactions suggest scepticism regarding the feasibility of Trump’s approach. Financial volatility has increased, and after significant fluctuations, the stock market enjoyed a rebound, with the Dow rising by 619 points. This optimistic uptick follows reassurances from Boston Federal Reserve President Susan Collins that the central bank would intervene should market distress arise. Nonetheless, any future tariff announcements from the Trump administration could lead to further volatility in stock values.
Concerns were heightened when it became clear that the previously reported tariffs on China were higher than anticipated, prompting significant declines in the stock market. In fact, the S&P 500 experienced one of its steepest weekly falls in recent years, while the Dow Jones saw multiple shifts of over 1,000 points within mere days.
Unusually, bond markets are underperforming, with US Treasuries not signalling the expected safe haven but instead reflecting investors’ growing unease about US trade policies and their potential impacts on the domestic economy. This uncertainty has led to rising Treasury yields, which, if sustained, could hinder economic growth as consumer borrowing costs rise.
Despite the unsettling environment, Trump remains hopeful, claiming that over 70 countries have expressed interest in trade negotiations to alleviate the burdens of his tariffs. Treasury Secretary Scott Bessent indicated that priority would be given to negotiating with allies like South Korea and Japan.
However, negotiations are not straightforward. The tariffs on Chinese goods remain at a staggering 145%, with China retaliating with its own 125% tariffs—creating a precarious standoff that threatens both economies. Though China has indicated a willingness to negotiate, it is determined to be treated with respect in those discussions.
Meanwhile, economists remain doubtful about the Trump administration’s capability to forge beneficial trade agreements swiftly, asserting that substantial damage has already been inflicted by existing tariffs. Current universal tariffs of 10% alongside 25% tariffs on various goods continue to pose challenges. As a result, prominent financial institutions like JPMorgan and Goldman Sachs warn of a near-equal chance of recession in the US and broader global economies.
Overall, while optimism persists within the Trump administration, market sentiment remains steeped in caution as investors grapple with the unpredictable ramifications of ongoing tariff strategies.