Trump Tariff and China Update – 9 April 2025
A rehash of what has occurred so far:
Last Thursday the Trump administration announced blanket tariffs of 10% across all U.S. trading partners, set to come into effect on the 5th of April EST. Countries with significant trade imbalances with the United States were hit with even higher “reciprocal tariffs”, set to come into effect on the 9th of April. Of these tariffs, the most notable were those imposed on China, being as high as 54%, including the 20% that had already been announced.
In the days following the announcement, Chinese President Xi Jinping condemned the move as “economic blackmail” and imposed retaliatory tariffs, matching the 34% rate imposed by the US. The situation then escalated further, when, just days later, the Trump administration imposed an additional 50% tariff on Chinese imports, bringing the total effective tariff on Chinese goods to 104%.
How are markets reacting?
As widely published, financial markets sold off heavily last week, and on Monday in Australia, upon fears of a resulting global economic slowdown from a reduction in trade.
The US S&P 500 index then appeared to stabilise, opening sharply higher on April 8, rising nearly 4% on rumours of a possible 90-day pause in the implementation of some tariffs. However, those gains quickly faded as the US administration held firm, showing no signs of de-escalation. The index closed the day down -1.57%, marking one of the largest intraday reversals on record.
Ahead of the midnight imposition of additional “reciprocal tariffs” on April 9 EST, the U.S. yield curve, being the amount the bond market prices US debt, steepened significantly. Yields on longer-dated Treasuries surged, with the 10-year and 30-year yields breaking above 4.5% and 5.0% respectively. Just 40 hours earlier, the 10-year yield had been trading as low as 3.95% – an extremely sharp and notable move, particularly with several key Treasury auctions scheduled this week.
In Australia, the S&P/ASX 200followed global markets lower, closing down -1.89% on 9th, with further declines expected in U.S. and European equity markets.
What does this mean for portfolios?
While the recent volatility has inevitably impacted investors, it’s important to remember that your portfolio is well diversified and is built for the long-term, using historical evidence-based principles. Trying to trade short-term news headlines, no matter how alarmist, is fraught with danger, particularly given the overwhelming market noise dominating the news at present. Typically, in these situations, a move to cash risks locking in losses, as markets often rebound well ahead of investors being able to accurately time when to get back in.
Despite all the negative news, there are several catalysts that could easily trigger something of a de-escalation, and a potential market rebound as a result:
A continued spike in bond yields – the upward shift mentioned above will worry the Trump administration significantly, as the move runs directly against the stated aims of US Treasury Secretary Scott Bessent. Will the administration be willing to exacerbate further upward pressure on yields, given the funding impact on US debt?
Pressure from Republicans – potential electoral pressure on senators and congresspeople, who fear of losing their seats. The pressure may be more acute in states bordering on Canada for instance, where agricultural goods often pass borders multiple times for processing.
Pressure from the judiciary – the flurry of lawsuits has already started, with the main source of attack on Trump being the use of Emergency Legislation via Executive Orders to enact what is effectively a Sales Tax – traditionally the realm of congress.
Cost of living – there are many items that will struggle to be manufactured cost effectively in the US, especially textiles. The impact of higher prices will heavily impact Trump’s working class supporter base, with 50% of the US electorate living pay check to pay check.
While it’s hard to tell what will happen in the shorter term, and things may get worse before they get better, it is always important to remember that prudent investing is about time in the market, rather than timing the market.
If you have any questions or would like to discuss how these insights might affect your financial plans and decisions, feel free to reach out to your Adviser. We’re always here to help.
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