Liberation day: the end of the world as we know it

Donald Trump has designated April 2 as "Liberation Day," marking the implementation of reciprocal tariffs on major trading partners. The main targets are the countries that Trump believes have contributed the most to the $1.2 trillion U.S. trade deficit.

Those who were once U.S. partners have now become adversaries, and the time has come for retribution.

The announced tariffs follow a two-tiered structure: a universal 10% tariff will apply to imports from all countries, and additional "reciprocal tariffs" will target specific nations based on their existing duties on American goods.

As expected, "Liberation Day" spread high volatility across financial markets, reshaping currency relationships, and forcing industries worldwide to reassess their global supply chains.

China faces the steepest penalties with a 34% reciprocal tariff, which combined with existing 20% tariffs brings the total to 54%. The European Union will see a 20% reciprocal tariff. Other significant rates include Bangladesh (37%), South Korea (25%), India (26%), and Japan (25%).

Certain strategic sectors were temporarily exempted, including semiconductors, pharmaceuticals, and critical minerals, though these exemptions might be reconsidered in the future.

The market reaction to the tariff announcement has been dramatic, with all major U.S. indexes plunging, and even more pronounced reactions in global markets.

As I was screening the news this morning, I came across a disturbing reality: a vast majority of analysts are describing the situation as "worse than the worst-case scenario," and the most relevant investment banks have raised recession probabilities.

The tariffs will impact virtually every sector of the economy, but some industries face particularly severe challenges due to their global supply chains and reliance on imports:

Electronics and Technology

The technology sector faces significant disruption with China, Taiwan, and South Korea, all major electronics manufacturing hubs. Prices may increase from 10 to more than 50% on consumer electronics depending on their country of origin.

Automotive Industry

Already facing a 25% auto-specific tariff implemented earlier, the automotive sector now confronts an additional 10% baseline tariff. Industry analysts estimate these combined tariffs could add $2,500 to $5,000 to the cost of the lowest-priced American cars and up to $20,000 for some imported models.

Retail and Apparel

The retail sector, particularly apparel and footwear, stands to be severely impacted, as China, Vietnam, and Bangladesh - the three largest clothing exporters to the U.S. - face tariffs above 30%.

Food and Beverages

Imported food products will see price increases across the board. The U.S. imports approximately 80% of its coffee beans from Latin American countries like Brazil and Colombia (both facing 10% tariffs), while chocolate production relies on cocoa imports from nations like Cote d'Ivoire (21% tariff). European wines, Scottish whisky, and other spirits will also become more expensive with EU imports facing a 20% tariff and UK products a 10% duty.

Energy and Resources

Consumers can count on higher gasoline prices as the cost of energy imports rises. Uranium prices for U.S. companies could increase by 10%, potentially impacting the nuclear energy sector.

Banking and Financial Services

The financial sector, which had anticipated benefits from Republican policies, has seen optimism dampened by economic uncertainty.

Travel and Tourism

The travel industry reports reduced spending amid rising economic uncertainty, forcing carriers to cut their first-quarter expectations. Some airlines have started reducing flights to avoid lowering fares and to protect profit margins.

Commodity currencies

Currencies known as commodity currencies like the Australian Dollar (AUD) and Canadian Dollar (CAD) have weakened against the USD, as they are tied to global commodity prices, which saw sharp declines following tariff announcements amid fears of a global economic slowdown.

Conversely, even if the "buy-the-dip" strategy is yet to be confirmed as wise, some assets and industries can present opportunities investors should pay attention to.

Gold and Precious Metals

Gold is viewed as a safe store of value during times of political and financial uncertainty, and analysts are projecting 10-12% gains, on top of the high valuation it already has year-to-date.

U.S. Treasury Bonds

Treasury bonds have surged as investors seek safety amid tariff uncertainty. The renewed tariff anxiety has alleviated selling pressure in government bonds that typically benefit from safe-haven flows.

Domestic Manufacturing

Some domestic manufacturers may benefit from reduced foreign competition. I cannot help to mention Tesla, an automaker with less exposure to manufacturing outside the U.S. compared to traditional automakers, that could gain a competitive advantage from these tariffs. Similarly, U.S.-based semiconductor and pharmaceutical companies might benefit if they can capitalize on the temporary exemptions while foreign competitors face tariffs.

Swiss Franc (CHF)

The Euro (EUR) and the British Pound (GBP) have already registered remarkable valuations towards the USD, following the tariff announcements. However, the Swiss Franc in particular can benefit the most as it holds a safe-aven currency status.

The "Liberation Day" tariffs mark a significant shift in U.S. trade policy and potentially herald a new era of global protectionism.

As markets continue to digest the implications and businesses adapt their strategies, volatility is likely to persist. Analysts expect continued market uncertainty for 3-6 months as trade negotiations unfold and the full economic impact becomes clearer.

For investors, the changing landscape presents both challenges and opportunities. As the global economy adjusts to this new reality, adaptability and careful risk management will be essential for navigating the aftermath of "Liberation Day."