The one thing we all know is that Trump will deliver his big announcement later in what he has been calling as Liberation Day in the US. It will come at 2000 GMT (4pm ET) at the White House, where he will provide an overview of his plans to shake up the global trade regime and introduce steep tariffs supposedly.
Over the last few weeks, we’ve seen markets retreat and adopt a more defensive approach. Risk trades have suffered and we’re seeing plenty of traders and investors move to the sidelines as it is so difficult to get an idea of what Trump wants to deliver.
And that’s pretty much the main issue. We know there’s going to be tariffs. But we don’t know any more than that as Trump himself seems to be making up the policy changes on the go. And even coming to today, reports are suggesting that he is still deliberating plans on what tariffs will be announced.
So, let’s take a check to see what do we know about things going into the announcement later.
We know that there will be tariffs. But how steep are they going to be? Are they going to be a targeted approach? Or is Trump going to go big in the opening salvo once more before pulling back?
We know that there is the possibility that Trump will then seek negotiations and offer exemptions/delays. He might even tone down tariffs as they go through the process. Is that going to be the case again this time? If so, which countries are going to be looped into this part of the whole show? And if so, to what extent is Trump willing to tone down to initial tariffs? That’s still unclear for now.
We know that other countries will seek retaliatory tariffs and countermeasures against the US. But to what extent will we see things escalate? Will Trump then threaten more tariffs and be stubborn about negotiations? Or will we see the US and other countries engage in talks during the interim to find some ways of deescalating the situation?
And with regards to negotiations and talks between the US and other countries, nobody knows for sure how long it will be before we reach a point where trade tensions simmer down. It could be as soon as the next week or it may even drag for over a month.
If Trump views tariffs as a way to squeeze other countries, it is plausible he won’t come to the negotiating table too quickly. That opens the door for trade conflict to escalate further in the meantime.
Lastly and perhaps the most difficult one to assess is that we know that all of this is going to have some impact on the global economy. But how exactly and to what extent will this impact growth conditions and inflation especially moving forward? Well, there’s so many moving parts as listed above and that is the major issue here.
The impact on the global economy will hinge on the level of Trump’s tariffs, the level of retaliatory measures by other countries, the possibility for talks/negotiations to resolve things, whether or not Trump will back down and take a softer stance, and how long this sort of rhetoric will play out to be. It might even be the case that this won’t be the last of Trump’s tariff threats.
If the latter is something that will be a constant in the market landscape in the months ahead, it will be tough for risk trades to gather much confidence. That especially if all of this starts to negatively impact economic conditions. In other words, giving rise to stagflation risks amid weaker global growth and higher inflation.
There’s just so much uncertainty still up in the air. And not all of it will be resolved just by Trump’s announcement later today. So, that is a key risk consideration for markets in the big picture. As such, any initial relief to Trump’s tariffs later might end up being short-lived as there will still be many questions left unanswered for now.