Feel Liberated(?)

Thought for Thursday

"The benefits of a tariff are visible. Union workers can see that they are 'protected.' The harm that a tariff causes is invisible and widespread. There are people who don't have jobs because of tariffs, but they don't know it." ~ Milton Friedman

Feel Liberated(?) 

Late Wednesday night, the President of the United States once again took to media headlines with a set of policies that are arguably among the most globally controversial ever introduced. As of April 9th, all countries running a trade surplus with the US will face a flat 10% levy on all exports to the US. Harsher tariffs have also been slapped on a cluster of larger economies that Trump claims have “taken advantage” of the US for decades. Some of these include a thumping 34% on imports from China, 26% from India, 24% from Japan, 20% from EU.

 The move is apparently 'designed' to catapult the U.S. economy into a new era of self-reliance and industrial resurgence. By making imported goods more expensive, Trump aims to ignite a renaissance in American manufacturing, urging consumers to "Buy American" and support homegrown businesses.

The concern is one that is shared globally – those overseas that are heavily reliant on US demand to keep sales above water are most at risk. These smaller nations, already grappling with economic vulnerabilities, now face the daunting prospect of reduced exports and shrinking markets. As the cost of their goods rises, their economies could be pushed to the brink, leading to job losses, social unrest, and a potential spiral into deeper economic instability. The ripple effects of these tariffs may well transform the global economic landscape, leaving smaller countries struggling to stay afloat in an increasingly turbulent sea.

Unfortunately, it is not just the smaller regions that are set to struggle. The European Union has responded with strong condemnation to President Trump's latest tariffs, viewing them as a significant threat to the global economy. European Commission President Ursula von der Leyen, in a video address on Thursday, described the announcement as "a major blow to the world economy." She emphasised the EU's readiness to implement countermeasures to protect its interests and businesses if negotiations with the U.S. fail. Von der Leyen has previously stated that the EU "holds a lot of cards," hinting at potential retaliatory tariffs and measures targeting American services and technology companies.

The UK, thanks to they’re comparatively fewer existing tariffs on US imports, they received a mere 10% reciprocal levy on all exports to the US. Business and Trade Secretary Jonathan Reynolds said late Wednesday in a statement that “our approach is to remain calm and committed to doing this deal, which we hope will mitigate the impact of what has been announced”.

At home, the tariffs have sparked a political firestorm. While some Republicans support the move as a necessary step to protect American jobs, others, including key Senate Republicans, have voiced their opposition. Senator Cole Booker made headlines over the weekend by delivering a 25-hour speech in protest of Trumps new policies. In doing so he broke the record for the longest speech that the Senate floor had ever seen. The Senate is expected to vote on a resolution to end the emergency declaration that enabled these tariffs, highlighting the deep divisions within the party. The other concern shared domestically is the hidden threat of a potential inflationary environment further down the road - a concern that analysts fear Trump has overlooked. 

The S&P and Nasdaq futures are down 4.1% and 4.8% down at the time of writing.  The VIX, a measure of equity volatility and a proxy for fear and uncertainty, climbs over 21% pre-market.

As the dust settles, one thing is clear: these tariffs are more than just a policy change - they're a bold statement of economic nationalism. Whether they will usher in a new dawn of prosperity or lead to stormy economic waters remains to be seen. One thing's for sure - global market participants and stakeholders are clutching their families and bracing for impact. The stakes have never been higher.