The Latest Round of Tariffs From the USA was More Extensive Than Expected

With the new measures included, the total tariffs on China, Japan and the EU are now 54%, 24% and 20% respectively. Most instruments apart from havens declined sharply in the aftermath of the announcement, with the dollar index near six-month lows late on 2 April. This article summarises the latest news of trade wars then looks briefly at the charts of EURUSD and USDJPY.

The new 10% tariff applied universally to all products imported to the USA will take effect on 5 April while reciprocal tariffs on specific countries come in on 9 April. There was panic in markets as traders assessed the likely impact of these developments: higher inflation in America and higher probability of a recession within the next few quarters.

According to calculations from JPMorgan, these new tariffs would raise around $400 billion in revenue for the USA, making this the largest tax hike since 1968. JPMorgan expects PCE to rise around 1-1.5% by the third quarter as a result. It’s not clear yet exactly what further reciprocal tariffs targetted countries will impose on America, but the rhetoric from China and the EU in the aftermath of the announcement on 2 April has been aggressive.

Against current sentiment, Donald Trump’s policy discipline is notoriously poor. Earlier tariffs, particularly against Canada and Mexico, were changed repeatedly and unpredictably, so it’d be possible to see the latest announcement modified significantly in the next few weeks, especially if major countries affected do what the American government wants. That the tariffs are very likely to be modified in some way soon while they don’t have a stated duration is strongly negative for investment and stock markets because it makes it very difficult for participants to plan ahead.

This week’s news comes in the context of generally weaker American economic data over the last few months, relatively high inflation already and a slight majority of traders now expecting two cuts from the Fed by July. Although tariffs and reactions to them are the focus now, traders must not overlook 4 April’s job report from the USA. This could give a surprising result and increase volatility further since DOGE’s recent activity in cutting federal jobs might become apparent.