Global Investors Brace for U.S. Tariff Decisions
SINGAPORE/NEW YORK: As the deadline for trade tariffs set by U.S. President Donald Trump approaches this Wednesday, global investors are feeling less anxious than expected. Many believe that potential outcomes have already been anticipated in the market.
Just days before the end of a 90-day pause Trump declared on April 2, details about the tariffs affecting exports to the United States were expected to be shared with twelve countries on Monday.
Investors, who have been keeping an eye on this date for months, expect further details soon but are also preparing for ongoing uncertainty. They doubt Trump will reach agreements with all U.S. trading partners in time.
“The market is adjusting well to tariff news,” said Jeff Blazek, co-chief investment officer at Neuberger Berman in New York. He added, “There’s enough flexibility in the deadlines that investors aren’t overly rattled by the news, and the worst scenarios seem unlikely now.”
The specifics of the tariffs and when they will take effect have become unclear. Trump indicated last Friday that tariffs could go as high as 70% starting August 1, which is a significant jump from the previously mentioned range of 10%-50%.
So far, the U.S. has only a limited arrangement with Britain and an in-principle agreement with Vietnam. Anticipated deals with India and Japan haven’t happened, and talks with the European Union have faced challenges.
Meanwhile, world stock markets are performing well, hitting record highs and increasing by 11% since April 2. Although there was a sharp 14% fall shortly after the announcement, there has been a bounce back of 24%.
“The initial announcement was a shock, and these tariff details will be the smaller tremors that follow. Even if the numbers are higher than the previous 10%, the market impact will likely be less,” said Rong Ren Goh, a portfolio manager at Eastspring Investments in Singapore. He noted that the current financial environment is flooded with liquidity, which makes it hard for investors to pull out or reduce their holdings without falling behind.
Tax Debates and Market Reactions
Additionally, investors have been focused on the extensive discussions in Congress regarding Trump’s large tax and spending plan, which he signed into law on Friday. The stock market has responded positively, celebrating the permanence of Trump’s 2017 tax cuts. However, bond investors are on edge, worried that the measures could add over $3 trillion to the national debt, which currently stands at $36.2 trillion.
The S&P 500 and Nasdaq indexes reached record highs, continuing a streak of gains. In Europe, the STOXX 600 benchmark has risen by 9% in three months.
Despite this, concerns about inflation linked to tariffs are impacting U.S. Treasuries and the dollar, along with expectations regarding the Federal Reserve’s monetary policy. Traders now predict no rate cuts from the Fed this month and foresee only two reductions by the end of the year.
The dollar has also taken a hit, losing its safe-haven status amid the uncertainty surrounding tariffs. The dollar index, which measures the U.S. currency against six others, has experienced its worst first half of the year since 1973, declining nearly 11% overall and 6.6% just since April 2.
“The market is factoring in a potential return to tariffs of 35% to 40% or more, while expecting an overall level around 10%,” noted John Pantekidis, chief investment officer at TwinFocus in Boston. He is cautiously optimistic about U.S. stocks for the year but is closely monitoring interest rates.
For now, he expects a drop in rates in the second half, but cautioned that any concerns in the bond market about the new legislation could lead to a different situation altogether.
