US Tariff Hikes and Global Trade Implications

Just a week after announcing unprecedented tariff hikes, US President Donald Trump has introduced a 90-day pause for most countries, while intensifying tariffs on China to an astonishing 125 per cent. This decision has induced volatility in global markets, with initial rallies followed by uncertainty.

Market Reactions

• The S&P 500 index surged by over 8 per cent following the announcement, despite a persistent 10 per cent baseline tariff.
• Subsequent market behavior saw gains diminish in early trading sessions, reflecting prevailing uncertainty.

Trigger for the Reversal

The reversal decision was likely influenced by pressure from the bond market, with the 10-year US treasury yield reaching 4.51 per cent, a rise of over 50 basis points in a few days.

Concerns Over the 90-Day Pause

• Questions arise over US President's strategy during this period: 
  • Will he negotiate with willing countries for tariff reductions?
  • Will he demand sector-specific or other concessions?

Continuing Trade War with China

• The trade war with China persists, posing significant global economic risks.
• China has responded with a reciprocal tariff of 84 per cent on US imports.

Global Economic Impact

The unpredictability in US trade policy raises concerns about potential policy reversals, impacting global investment and consumption. This could hinder global trade and economic growth.

Implications for India

India should not be complacent and must actively pursue a bilateral trade deal in response to the changing global trade landscape.