This day is also called “Liberation Day” by him. The importance of the second wave of tariff policies for the global economic and trade pattern or financial markets is self-evident.

Looking back at the past two months, apart from various threats and repetitions, Trump’s main tariff policies include:

In February, a 25% tariff was announced on Canada and Mexico, which was subsequently postponed to April

In February, an additional 20% tariff was imposed on China, which took effect immediately

In March, a 25% tariff was imposed on steel and aluminum imports, with no exemptions

In March, a 25% tariff was announced on imported cars and took effect on April 3, with some exemptions for auto parts

In March, a 25% tariff was announced on countries importing oil from Venezuela. The market reaction to the tariff policy:

As of April 1, the three major U.S. stock indexes have fallen this year, and have retreated 8%-13% from their peaks. During the same period, European and Hong Kong stock markets rose sharply. Gold has risen 18% this year to break through the $3,100 mark

U.S. inflation expectations have soared (inflation expectations for the next year have risen to 5%), economic growth expectations have been lowered (Goldman Sachs predicts that the probability of recession has been raised from 20% to 35%), the risk of stagflation has increased, and consumer confidence has fallen to a multi-year low

Due to the risk of rising inflation, the Federal Reserve maintained its forecast of two rate cuts this year, but more hawkish voices have emerged

Trump said that companies and countries have made “investment commitments” to the United States of $4 trillion. But while Trump is committed to bringing manufacturing back to the United States, the U.S. manufacturing PMI in March has fallen for two consecutive months and fell below the 50 boom-bust line

Currently, everything about “reciprocal tariffs” is just speculation, and there are even differences within the Trump administration.

Since the tariff farce in the past two months has named China, Mexico, and Canada, the three major trading partners and deficit countries, this wave of reciprocal tariffs may involve other trade deficit countries, such as the European Union, Vietnam, Japan, etc. (the blue part in the figure below), and may also target countries with higher average tariff rates and non-tariff barriers than the United States, such as India, South Africa, South Korea, and Southeast Asian countries. The countries that meet both of the above conditions (high trade surplus and high tariffs with the United States) are India, South Korea and Vietnam. In addition, there are speculations that Trump will impose a 20% tariff on imports from all countries indiscriminately (good for the US dollar), and may also impose tariffs on countries with undervalued currencies.

In extreme cases, Trump may continue to increase tariffs on China, while a more moderate scenario is to continue to postpone tariffs on Mexico and Canada and avoid imposing comprehensive and high tariffs on other countries.

Based on the situation in Mexico and Canada in the past two months, it is not ruled out that this round of tariff policy will first announce a higher tariff as the basis for negotiations, and then appropriately reduce or grant partial exemptions. But this also means longer policy repetitions and market turmoil.

In any case, Trump, who relies too much on tariff policies, is destroying the global free trade system established by the United States, and at the same time shattering the trust of allies.

The current average tariff rate in the United States has reached 8%, the highest level since the 1940s. If the tariff war continues to escalate, the tariff rate may rise to nearly 20% in the 1930s. At that time, the US “Smoot-Hawley Tariff Act” triggered a global tariff war and trade shrinkage, which became the fuse of the US stock market crash in 1929 and eventually triggered the Great Depression. The current trade environment and Trump’s uncertainty are hard not to remind people of the worst situation.

For US stocks, despite a rebound at the beginning of this week, there is still a long way to go to regain the upward trend.

At the macro level, the repetition of tariff policies and the poor economic outlook may keep investors away from uncertainty. From a global perspective, European and Chinese assets are obviously more “safe” at present. At the micro level, due to the damage to consumer and corporate confidence, corporate earnings growth forecasts have been lowered, while the US’s high-tech export controls and the emergence of DeepSeek have caused investors to reassess the prospects of US technology stocks. If the Big Seven stalls, the U.S. stock market will be more difficult. In terms of technical trends, the three major indexes are still below the 200-day moving average, and the current market trend is very similar to that in January 2022.

NASDAQ 100 daily chart

Source: TradingView, Forex.com

It is worth noting that the US credit risk spread has recently shown signs of rising. From the historical trend comparison, this is a dangerous signal for US stocks.

US credit risk spread vs S&P 500

Source: TradingView

If the Trump administration chooses to ignore the short-term fluctuations in the economy and stock market and stick to its long-term “policy goals”, the market trend in the first quarter of this year may continue, and the only hope left in the market is the Federal Reserve. If the Federal Reserve continues to wait and see in the dilemma of “protecting the economy” and “fighting inflation”, the US stock market will lack important rebound momentum.

Of course, after a recent period of adjustment, the current valuation of US stocks has significantly fallen back to the long-term average level, which provides the possibility for bulls to re-enter the market, but the premise is that many policies including tariffs need to be more cautious and predictable, but this is also the most uncontrollable part.

After the reciprocal tariffs, the US non-farm report and the fourth quarter earnings season of US stocks will become the next market focus.