Fri, 04/11/2025 - 10:34
After an extended period of "will he, won't he", the world was shaken last week as President Trump finally went ahead and enacted his much-discussed 'reciprocal' tariffs against a host of nations that the White House believes unfairly tax US imports and benefit asymmetrically from bilateral trade with the world's biggest economy. By far the worst affected was (rather predictably) China, whose effective tariff rate now stands at 125% after an additional 50% was added in response to China's tit-for-tat tariffs, which stand at 84% on US goods, and a further 21% were added by the US on 9 April for the "lack of respect that China has shown to the World's Markets.", as Trump put it. Many of the other hard-hit nations were located in Asia, including Cambodia (49%), Vietnam (46%) and Myanmar (44%). Meanwhile, India and the EU got off relatively lightly, with 27% and 20% levies, respectively. And now, in another typically haphazard development, these rates have been reduced to 10% for a period of 90 days for every country except China to allow for negotiations to take place.
As one might expect, the impact on stock markets has been pretty devastating, with both the S&P 500 and Nasdaq 100 down over 10% since Trump's "Liberation Day" on 2 April. Surprisingly enough, the China A50 index lost just 3% over the same period, though the Hang Seng declined 12.5% during that time. But it isn't just equities that have felt the brunt. The lifeblood of world industry, crude oil, has also lost a full 20% since the trade war kicked off. Brent dropped as low as $60.40 a barrel on the morning of 8 April, its lowest level since 2021. But is this just a precursor to a trade deal that will drive the world economy forward in the long term, or could the pain continue well into the second half of the year?
Out of stocks
As an expression of the outlook of big business for the future, it's unsurprising that stocks have fared poorly following the breakout of a full-scale trade war between the US and, well, most of the world. US companies are highly dependent on imports, and they are the ones that will have to bear the immense costs associated with relocating production facilities or sourcing only US-made raw materials. After leading the way throughout the bull market of the past three years, the Magnificent Seven stocks — Apple (AAPL), Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA) and Nvidia (NVDA) — are feeling the brunt of the current downturn. These big seven tech names, whose manufacturing is largely dependent on normal trade relations with China, lost over $1 trillion from their collective market caps in the first trading session following the tariff announcements. Their losses eventually reached double-digit percentages.
The Federal Reserve may be able to provide some support in the form of an earlier-than-expected rate cut, as will any firm moves to initiate Sino-US trade talks. Trump was quoted on 8 April as stating that "China wants a deal, badly", while also expressing his own willingness to entertain such a possibility. Chinese stocks have fared surprisingly well, only losing an average of around 3% after recovering from a deeper leg down. This is largely due to the Chinese government's pledge to mobilise the sovereign wealth fund, Central Huijin Investment, to buy up Mainland ETFs. China's blue-chip CSI 300 Index (.CSI000300) climbed 1.7% and 1.6%, respectively, on the news. Regulatory intervention from both the CCP and possibly the Fed should hopefully help to stave off more declines until negotiations begin.
Giving it both barrels
The other predictable poor performer post-Liberation Day has been oil. The fuel is often correlated with strong production and international trade, as it is used to power industry in countries like China and India and, then, of course, to transport the finished products to markets around the world. Virtually all crude types, from Brent to WTI, were down around 20% at the start of business on Wednesday, 9 April. Then, after Trump announced lower tariff rates for all countries except China in the early afternoon that day, US crude oil futures jumped more than 4% by the close of play to book its best day since October of 2024. Brent then stood at a much healthier $64.70 per barrel, while the US benchmark climbed above $60 to reach $62.35. However, traders are still worried that the world is headed for a full-blown trade war that will trigger a recession, ultimately hitting crude oil demand again.
At the same time, OPEC+ has agreed to accelerate its output in May, bringing more oil to an already oversupplied market. Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, has called the combination of recession worries and increasing oil supply "a toxic cocktail", and she could be right. To complicate matters further, US-Iranian nuclear talks taking place in Oman this weekend could lead to even more supply if a positive outcome sees Iranian oil back on the open world market. One positive is the approach of the summer driving season, which is typically a strong driver of demand. This year, the effect is expected to be even more pronounced as more and more people choose to take domestic vacations and road trips as opposed to travelling by air amid cost-of-living pressures and general belt-tightening in preparation for a potential recession. With negotiations now firmly on the cards, however, it feels like this was yet another Donald Trump "Art of the Deal" ploy that could pay off handsomely for the US and drive even more growth in H2 2025 and beyond.
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