4 minImpact of U.S tariffs on financial markets
Guy Wagner On April 2nd Donald Trump announced new reciprocal customs tariffs against the world. The tariff levels chosen by the American president are particularly high, with a minimum rate of 10% for all countries, with some countries facing a much higher rate to take account of their own customs barriers.
Finance Minister Scott Bessent made it clear that these levels would be maximums as long as countries did not riposte, but that they could be lowered if compromises were reached. While negotiations are therefore possible, the risk remains that the tariffs announced will remain in place for a long time, and may even prompt other countries to take countermeasures.
How will these developments affect the financial markets?
- The announcement of these tariffs confirms Donald Trump's dislike of free trade agreements and the way world trade is currently organised, which he regards as unfair to the United States;
- We will now have to see how other countries react, but it is clear that, just as the era of globalisation has been very favourable for stock markets (especially in the industrialised countries), a return to protectionism (or even worse, a trade war) will be unfavourable to them;
- In contrast to a preconceived idea, the longer-term repercussions of the announced tariffs could well be deflationary, after a possible initial inflationary impact. At the same time, economic growth will slow. The reaction of the bond markets (lower long-term interest rates) is therefore understandable;
- For the dollar, the long-term impact of the eventual disappearance of the US trade deficit would be positive, as it would reduce the supply of dollars. However, the path leading to this disappearance will be unfavourable for the greenback;
- The flip side of the US trade deficit is the US capital account surplus (capital inflows into the US), and a reduction in one will lead to a reduction in the other. If, as Donald Trump says, the organisation of world trade has been unfavourable to the US manufacturing sector, it has been very favourable to the US financial sector and stock market. Demand for US financial assets will fall. This will put an end to the outperformance of the US stock market, a theme we highlighted at our start-of-year conferences;
- US large caps seem particularly at risk, given that they have enjoyed a disproportionate benefit from capital inflows and that their valuations remain high. Among these, the major technology companies could be subject to retaliation by the European Commission, especially as their alignment with the Trump administration could attract the attention of the European regulator;
- At first, stock markets are likely to react indiscriminately, especially as the US market often sets the tone for other markets, especially European ones. The tariffs announced will affect growth, and therefore corporate earnings. At the same time, investors will continue to worry about the inflationary impact of these tariffs. None of this points to a lasting recovery for the stock markets in the short term. On the positive side, central banks may loosen their monetary policy and some countries may announce more substantial stimulus measures;
- Beyond these short-term considerations, the new environment nevertheless marks the return of active management. This means differentiating between regions, countries, sectors, and even between companies within the same sector. For example, in a sector such as luxury goods, it will be necessary to distinguish between companies that target a very affluent clientele with little sensitivity to price and those with an aspirational consumer base, between companies that have production sites in the USA (enabling them to produce in the USA what is sold there and escape tariffs) and those that do not, and so on...;
- A return to protectionism is likely to lead to a return to a kind of financial nationalism, encouraging different countries (or regions) to invest at home again. This would favour the financial markets and the currencies of countries like Japan, which have large surpluses;
- The Trump administration's economic programme will only reinforce the desire of many countries to reduce their dependence on the dollar. Gold will continue to benefit from this situation
Publication date: 03/04/2025
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