President Donald Trump’s recent tariff policy has seen a whirlwind of economic disruption, political manoeuvring, and global trade recalibration. Initially heralded as a bold move to restore equity in international commerce, the rollout of “reciprocal tariffs” quickly sent financial markets into a tailspin. Now, with a partial pause announced, the story of these tariffs reflects both the unpredictability of Trump’s leadership and the fragile balance of global trade.
How the tariffs were calculated
Trump’s reciprocal tariffs were designed using a formula that divided a nation’s trade deficit with the United States (US) by its exports to the US, then halved the result. This approach aimed to penalise countries with significant trade surpluses while maintaining a baseline 10% tariff for all trading partners. For example, China – already at the centre of US trade tensions – saw its tariff rate soar to 104%, later increasing to 125% and then to 145% following retaliatory measures by Beijing.
Economists collectively criticised this formula for its flawed assumptions about elasticity and trade dynamics, while analysts argued that Trump’s method exaggerated tariff rates due to unrealistic metrics, with some suggesting that no country should face tariffs higher than 14% under corrected calculations. The European Union (EU), Japan, South Korea, and Vietnam were among those hit hardest by these steep duties.
Market tailspin
The announcement of reciprocal tariffs on 2 April triggered immediate chaos in global financial markets. Within two days, US stock exchanges experienced their largest decline in history, erasing $6.6 trillion in market value. The S&P 500 plunged over 12%, to approach bear market territory (-20% from peak), while bond yields surged as investors sought safe havens. The ripple effect extended internationally; Asian markets faltered, and the Chinese yuan fell to its lowest value since the global financial crisis.
Wall Street leaders and Trump’s allies voiced concerns over the economic fallout. Billionaire investor Bill Ackman proposed a temporary pause on tariffs to stabilise markets and allow for negotiations, while Elon Musk mocked Trump’s trade adviser, Peter Navarro, in private conversations, and hedge fund managers warned of potential stagflation or recession due to escalating costs for consumers and businesses alike.
Trump’s reversal
However, in true Trump fashion, on 9 April, after witnessing days of market turmoil and mounting pressure from business leaders, Trump announced a 90-day pause on reciprocal tariffs for all nations except China, whose tariffs were simultaneously raised to 125% due to what Trump described as “disrespect” toward global markets. The pause reduced duties on goods from 57 trading partners back to the baseline 10%, offering temporary relief while negotiations continue.
Trump framed this reversal as a strategic move to compel trading partners to lower their own barriers. US Treasury Secretary Scott Bessent praised the decision as part of Trump’s broader negotiating tactic, emphasising the leverage gained through initial tariff hikes. However, while some have applauded this chaotic ride that Trump has sent US trading partners and financial markets on, others viewed this flip-flopping strategy as emblematic of Trump’s inconsistent trade policies.
Economic uncertainty ahead
Wednesday’s pause on the implementation of tariffs sparked a dramatic rebound in markets; the S&P 500 surged by 9.5%, its largest single-day gain since 2008. However, this was short-lived and global equity and bond markets resumed their sell-off on Thursday as uncertainty persists regarding the long-term impact of Trump’s tariff policies. While some nations are engaging in talks with the US, others – like China – remain entrenched in retaliatory measures. Beijing imposed an 84% tariff on American goods in response to Trump’s escalation, further straining relations between the world’s two largest economies.
The broader implications for inflation and consumer prices are concerning. Higher costs for imported goods – ranging from electronics to agricultural products – could undermine economic growth and exacerbate challenges faced by businesses reliant on global supply chains. Meanwhile, there is concern that without intervention from the US Federal Reserve (Fed) or clearer policy direction from Washington, markets may struggle to sustain any recovery.
Trump’s reciprocal tariff saga underscores the volatility inherent in his approach to governance and trade policy. What began as an aggressive bid to reshape global commerce quickly devolved into economic disruption and political backlash. The subsequent pause offers temporary respite but leaves unresolved questions about future negotiations and market stability. As nations grapple with these shifting dynamics, one thing is clear: Trump’s tariffs have fundamentally altered the landscape of international trade – for better or worse.
A LOOK AT THE MARKETS
Turbulence is, yet again, the best descriptor for the week. President Trump continued to send the markets on a seesaw ride, as he not only walked back his tariffs for 90 days, following pressure from soaring bond yields and some of the Wall Street heavy weights, but also sought permission from the US Supreme Court to have the right to fire agency leaders. This latter move caused a stir in markets as it suggests that Trump might use the same approach to go after Fed Chair Jerome Powell, following Trump’s multiple remarks regarding the Fed’s unwillingness to cut rates merely on his appeals or requests.
US stocks rally nipped in the bud
On Thursday, major indices erased some of Wednesday’s historic rally. The Dow dropped 2.5%, the S&P 500 slid 3.46%, and the Nasdaq fell 4.31%. Wednesday’s gains were driven by President Trump’s announcement of a temporary 90-day tariff pause for most countries but on Thursday investor optimism faded as concerns over US-China trade tensions resurfaced. The White House confirmed tariffs on Chinese imports had been raised again, now to 145%, intensifying fears of a prolonged trade war. Meanwhile, the German DAX soared by 5.7% on Thursday and the United Kingdom’s (UK’s) FTSE by 3.2%, reflecting the poor sentiment towards the US.
Our focus today will be on key consumer sentiment data and earnings reports from financial institutions, including JPMorgan Chase and Wells Fargo, following a lower-than-expected Consumer Price Index (CPI) reading yesterday. It is important to note that the CPI reading is backward looking, and therefore not yet reflective of the current tariffs that have been implemented on goods imported by the US.
US Treasury yields face biggest weekly gain in three weeks
The yield on the 10-year US Treasury note climbed to 4.5%, marking its largest weekly increase in three years. This reflected the widening cracks in sentiment and confidence towards the US economy and American assets, fuelled by foreign investors, such as Japan offloading Treasuries amid scepticism over US trade policies. UK Gilt yields declined, while German Bund yields climbed as expectations of a European Central Bank (ECB) rate cut declined.
The rapid selloff in Treasury bonds highlights broader uncertainty in financial markets, as investors weigh up the impact of escalating trade tensions and potential recession risks.
Gold remains safe haven of choice
Brent crude oil futures dropped toward $63/barrel, marking a second consecutive weekly decline as US-China trade tensions raise concerns about global fuel demand. The US confirmed tariffs on Chinese imports had been raised again, now to 145%, overshadowing a temporary 90-day tariff pause for other countries. This increase could dampen oil demand from China, the world’s largest importer. Additionally, the expanded Organisation of Petroleum Exporting Countries, OPEC+, accelerated production increases, heightening fears of oversupply.
Gold is set for its strongest weekly performance since November, reflecting investor caution in the face of escalating global uncertainties. Its price soared past $3,200/ounce, reaching a record high as safe-haven demand surged amid trade tensions and a weaker US dollar. The tariff hike on Chinese imports is fuelling concerns over an economic fallout. Inflation risks remain elevated due to intensified trade measures.
Dollar approaches lowest level in three years
The US Dollar Index fell to just above 100 this morning, nearing its lowest level in three years as investor confidence in American assets waned. Concerns over President Trump’s tariff policies, including the sharp increase to 145% on Chinese imports, have fuelled fears of slower economic growth and deepening trade tensions, despite a temporary 90-day reprieve on other US trading partners aimed at easing negotiations.
Safe-haven currencies like the Japanese yen and Swiss franc strengthened significantly against the dollar, while the euro surpassed $1.11/€ for the first time since late 2024. In response to these developments, markets adjusted forecasts for ECB rate cuts and scaled back bets on Bank of England easing, further supporting the pound and the euro.
*Please note all data is as of the time of writing, and data might differ upon distribution.
*Please also note there will be no Weekly Wrap next week, due to the Easter long weekend.
Key indicators:
GBP/USD: 1.2967
GBP/EUR: 1.1569
GBP/ZAR: 25.22
GOLD: $3,210
BRENT CRUDE: $60.62
Written by Citadel Advisory Partner and Citadel Global Director, Bianca Botes.
Sources: LSEG Workspace, Reuters, Bloomberg, Trading View and Trading Economics.