Markets on tilt after Trump's Liberation Day tariff blitz
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Hey, everybody. It is Thursday, 3rd of April, 2025, the day after Trump's Liberation Day tariff announcements, a real blitz, a real barrage, many words being used to describe what just unfolded yesterday. And certainly, as you can see from how markets reacted, this was beyond what the bad case, the worst case scenario, perhaps being crystallized here, certainly risk off U.S. Treasury's

rallying hard as U.S. yields come down. The Japanese yen absolutely going ballistic, playing catch-up, which it already needed to do, and then moving even further because these yields are at new local cycle lows in the U.S. We'll cover all of that. It really may be a bit difficult to wrap our heads around everything here. I don't want to go too much into the fine-grained details of what unfolded. I'm sure most of you have had a pretty good look at that. Of course, the 10% baseline tariffs and then the so-called reciprocal tariffs, which were calculated –

based on the imports of the given country, that is into the U.S., minus whatever the U.S. exports.

So that net import amount and then dividing that by the overall number of imports from that country and then dividing that by two to make Trump look generous. And it's really just so endlessly fascinating to see the hot takes from the traditional economists saying this is shooting ourselves – the US shooting itself in the foot, that this is going to be disruptive. It's a tax on the American consumer.

But we have to look at this through geopolitical eyes. We have to look at this for what it is. It is the inflection point brought about by the Triffin dilemma. What is the Triffin dilemma?

I think I've talked about it on the podcast before. It is when a national currency is used as the global currency for both trade and for accumulating reserve assets. And those two functions of it driving, therefore, massive U.S. trade deficits over time and massive budget deficits because you need the treasuries to build up your currency reserves.

As you do this over time, it erodes the fiscal stability, the financial stability of the underlying country, that is the U.S., to the point where it becomes existential for things to change. This is that existential moment. It started under Trump 1. It is being followed through in spades here in Trump 2.

The U.S. cannot afford to have its whole manufacturing base hollowed out, its middle class hollowed out, and it is moving to throw a wrench into the works, throw a spanner in the works if you're British, putting basically a steel pole in the gears or the cycle wheel, whatever the metaphor you want to choose of the global economy. Yes, it is destructive, but it has a purpose. I'm going to try to put a couple of links to the better pieces than I can articulate here.

on the podcast. Um, but of course we have our own angle as well. The one from Michael Everett, who quotes quite actually heavily from, uh, Yannis Varoufakis, the former Greek finance minister during the early days of the, uh, EU sovereign debt crisis, a very eloquent individual. And I've got just the money quote that he ends the piece with, uh, here. Uh, he says, uh,

He's talking about some really good parallels with how this is sort of a generational shift in the global economic or the global sort of structural regime and draws parallels with what Nixon did in 1971. He says, quote,

We would do well to recall that the Nixon shock was much more important than Nixon. If Nixon reshaped the world once, leaving it nastier and more unbalanced, Trump can certainly do it again, unquote. I think that really is critical here because even including myself, many people get caught up in the theatrics of Trump, his persona, his projection, and maybe want to disagree with him simply for those reasons. But there's some underlying deadly seriousness behind that.

And, of course, we can go down the laundry list of the actual amounts that were assessed on the tariffs. I'll mention a couple of these. I think one of the more important ones or interesting ones was the 34% on China on top of the 20% already announced. So that's 54% total. Now EU getting 20%, Japan 24%, and down the line. UK, which has no real trade surplus with the U.S., only getting the baseline 50%.

And a big focus in Southeast Asia on some really high levels there. These countries running sort of mercantilist policies, a la China, although, of course, they're not as big and don't rival the U.S. economy. But still, South Korea, 25 percent. Bangladesh, 37 percent. That's likely clothing there. And Vietnam, 46 percent. Vietnam was becoming increasingly popular as a transshipment country.

location for Chinese goods. Somebody telling me things like Nike's being sent in a box from China and then labeled being from Vietnam and avoiding the China tariffs. Well, that is no more. And we see, in fact, in the aftermarket reaction

some key names going down that are exposed to all this. Who is the number one producer of goods out of China? It's Apple. And we saw a minus 7% move there. And some of that aggravated by the fact that the tariff will be slapped on India of 26%. It was moving a lot of its production to, or it is in the process of moving a lot of its production to India. So that won't help. Of course, Apple has announced that it's going to invest massively in the U.S.,

Who knows if there will be eventual carve-outs, et cetera. But this is a bad news for Apple. We saw also the likes of Nike. I think it was also down 7%. Amazon, which ships a heck of a lot of Chinese goods, down 6%. And on down the line. So we're going to see some interesting fallout here in markets on the opening day.

There was a little bit of maybe, I don't know if you want to call it damage control, but maybe some attempts to shed a little bit of light on the situation by U.S. Secretary Scott Besant, who said that this is at the high end of what could be expected, assuming no retaliation. So what does that mean? Is there the space for dealmaking? Do we get retaliation right away? This will be the most important follow-on questions as we look forward from here.

And in particular, I think the vicious, I say vicious, I don't want to make too much of a value judgment, 34% on top of 20% is 54%. That's a pretty vicious level for the tariffs against China. There was an additional announcement

from the White House on this de minimis issue. So these packages of $800 or less that were allowed to come into the U.S. without essentially any tariffs that were accepted, there was a carve-out from the prior tariffs against China. That is no more. There will be a minimum tariff of 30% of the value or $25 per item. I assume that $25 is minimum per item shipped and $50 per item starting June 1st.

So basically, this will shut down the likes of Shane and Timu, these e-commerce outfits out of China sending into the U.S. The excuse given was one of stopping fentanyl shipping. But together with all these additional processing requirements to stop

the duties on these packages, which will make it just a non-starter based on the value of these goods. It just looks like the U.S. is making a further move here on top of that 54% across the board on China at decoupling from the Chinese economy. This is really dramatic stuff, essentially maybe risking a bifurcation of the global economy if the U.S. gets its way and throws its weight around via the Monroe Doctrine or otherwise to

sort of set terms with other countries, let's take Canada and Mexico, for example, that sure, we can be a bit more free trade oriented as long as the trade surpluses that you are building are not particularly large, as long as you're not allowing Chinese producers to produce on your territory and on down the line and maybe spreading that to the rest of the America's policy markets.

And further, there's even further move risk of a further expansion of the tariffs against China if the Trump administration follows through on the 25% secondary threat on anybody who imports Venezuelan crude, and that would be

And then there's also the Russian oil issue, which is hanging out there, the risk that if Russia doesn't show signs of turning towards the West, making a deal in Ukraine, and you see the Trump administration moving on secondary tariffs against those that import Russian oil, an additional 25 to 50%.

So it's a big thing to absorb here. I just want to do a quick podcast to get our initial reaction, the thoughts on where this goes. I think the first key, again, is the scale of retaliation on day one, that being today. As other countries look towards responding, the EU has been out saying that they will respond. How big will that response be?

Does the U.S. insist down the line that, oh, yeah, we'll maybe ease up on some of these tariffs, but you'll have to buy U.S. defense goods? Or is Europe so thoroughly spooked by the U.S.'s stance on everything that it pursues its own – spending on its own military equipment and develops that, risking a further sort of divorce from the U.S. economy over time? Huge questions that hang here in the balance.

So again, I think I outlined it at the top of the podcast. We had the big move in the Japanese yen. I would expect that to continue as U.S. yields come down. This dramatically raises the U.S. recession risk. If we go down the line of all the effects here, the tariff risk is very significant. And then you have a negative wealth effect risk as well if U.S. equity markets come down. Cover more of that. We're going to make another podcast tomorrow.

With my colleagues, Ulu on commodities and Jakob on equities. We do have earnings season coming up, uh, next starting next, uh, end of next week. It'd be very interesting to see how companies change their forward forecast based on what just unfolded here. Um,

And the Euro, screaming higher, above 110. The last I saw it before coming in here to record the podcast, I think there's a clear path to breaking above 112, even going to 115 and beyond here. A significant change in the mentality in Europe, much more domestic growth.

Investment in infrastructure and military spending won't be recycling German savings abroad anymore. Those will be staying very much at home. And we even had, this kind of got lost in the shuffle, we had the ECB's Schnabel, so a German, out saying, encouraging the idea of more joint euro debt issuance to increase the euro's role in the global economy. This coming from a German. So this was a powerful, drove a powerful spike in the euro higher than

That sense was curtailed by the Trump tariffs of 20% on EU goods. But I'm looking for the euro to still outperform certainly the dollar, which is weakening as everyone is looking at reducing their weightings towards the U.S. economy, not only for recessionary reasons but for security reasons. How much of your reserve assets do you want to have in the U.S. when the U.S. is trying to scare you away? As well, this is going to completely alter the universe of

or the landscape, I should say, of U.S. external imbalances over time. And then, therefore, the recycling of savings into U.S. equities also reverses potentially, and those allocations that are already in the bag

potentially needing to be reduced. So U.S. equity market underperformance at minimum and a bear market risk if we go towards a U.S. recession. U.S. Treasury is coming down. I mean, the long end is a curiosity over time as the Republicans are still making noise about tax cuts, which seems crazy when you already risk the deficits getting worse because of

because of recessionary dynamics, which will reduce the tax haul, especially of the tax off capital gains taxes if markets are in poor order for some time this year. But the short end, I think it does open up for the Fed to ease more than expected. Yes, inflation will probably go higher again over time. But there are some deflationary forces in some asset markets and housing markets as well.

And if we get that unemployment level up a percent or more, you'll see the Fed feeling like it has to swing into action. So I don't think it's unreasonable to look for 125 basis points of easing this year, provided we don't get too bad of an inflation spike if we get that unemployment level beginning to tick higher. Currently, the market price is at around 80 basis points. Yeah, I think that's about what I wanted to cover for today. There were some carve-outs in the announced tariffs.

I will put a couple of links in the podcast description, both to the Every piece, the Varoufakis piece, and the original White House announcement on these tariffs if you're interested. Those carve-outs are for some things that might actually be tariffed later. So it's not necessarily because the tariffs won't happen on these items, things like copper semiconductors. I doubt if they're going to happen on bullion.

And if there's already a tax or a tariff on the autos, that is not on top of the other ones or not on top of the other new tariffs. But yeah, this was a historic day for markets. We'll have a bit of time today to further digest the news, see some of the responses we're seeing across global powers. Very interesting that what feels like radio silence so far from China, except on things like

that it will respond, that it will feel emboldened to take intellectual property for anybody operating in China that has tariffs or sanctions against its exports. I think we can – it's safe to say that this is opening up a new era for the global economy where we have way more questions than answers. And we'll take it one day at a time and we'll be back soon, tomorrow in fact, with the next Saxo Market Call.