Trump retaliates with tariffs, markets volatile, fears of recession and inflation
2 April 2025 – President Donald Trump announced a new tariff measure called the “Reciprocal Tariff,” set to take effect on 5 April 2025. This policy sets a minimum import tariff of 10% on all imported goods, with additional tariffs applied to countries that the U.S. deems to have “unfair trade practices” with the United States. The countries subject to higher tariffs include China (34%), Japan (24%), European Union (20%), and Thailand (36%).
The objectives of this measure are 1) to address the trade deficit, 2) to increase tax revenue, and 3) to pressure businesses to return to domestic investment and job creation.
Impact on Financial Markets after the Announcement (3 April 2025)
- The U.S. stock market declined, with the S&P 500 down by 4.84%, Nasdaq by 6%, and Dow Jones by 4%.
- International stock markets also saw drops, such as the European STOXX600 Index falling by 2.57%, the Japanese TOPIX Index decreasing by 3.08%, the Chinese CSI300 Index dropping by 0.59%, and the Thai SET Index down by 0.93%.
- U.S. government bond yields for the 2-year and 10-year notes fell by about 10–15 basis points, reflecting market concerns over the potential slowdown in economic growth.
Investment Outlook and Recommendations
- The market is closely watching whether these tariff measures might lead to stagflation—a situation where inflation rises while the economy slows down—and increase the risk of a U.S. recession.
- For Thailand, if tariffs increase as outlined, the economy—previously projected to grow by 2.4% this year—may fall short of 2% growth.
- Nevertheless, most analysts believe that these announced tariffs are being used as a tool to bring trading partners to the negotiating table. For example, in Trump’s announcement, he mentioned that Vietnam had already reached out to begin talks prior to the press briefing.
- Going forward, it is essential to monitor how affected countries will respond—whether by increasing imports from the U.S., which may ease the tariffs, or by implementing retaliatory tariffs, as seen with China and Canada, both of which have announced retaliatory tax hikes.
- However, due to the uncertainty, it's still difficult to pinpoint the full extent of the potential impact.
- In the short term, the market is in a risk-off mode and is expected to remain volatile for a while. However, long-term investors are advised not to panic.
- Investments should continue according to each portfolio's risk tolerance, and diversification across various asset classes remains crucial to minimize potential losses—highlighting its importance during times of market volatility like the present.
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