Fin-X Pulse 3rd April 2025

This morning, President Trump announced a minimum 10% tariff on all imports to the United States regardless of origin and including from Australia. Approximately 60 nations were singled out for higher “reciprocal” rates. Markets initially responded positively to the 10% announcement before dramatically reversing course after the higher rates were revealed.

• President Trump signed an executive order Before a crowd gathered in the White House’s rose garden to apply his “Liberation Day” tariffs from 9th April 2025.

• A minimum 10% tariff will be applied to all imports, with approximately 60 nations attracting higher “reciprocal” rates.

• Individual countries will attract higher rates based on an American government assessment of the monetary and non-monetary barriers applied by those countries to imports from the US exports. The perceived value of the barrier will be reduced by 50%.

• According to the White House, monetary barriers include tariffs and value-added consumer taxes such as GST. 

• Examples of non-monetary barriers include currency manipulation, intellectual property theft, undercutting environmental rules and restrictions based on product standards. 

• Australian exports will attract a 10% tariff. But important trading partners will see higher rates applied. China will attract 34%, South Korea 25%, and Japan 24%. Please refer to the tables below for the full list of rates released.

• Canada and Mexico were not specifically mentioned after a 25% tariff had already been applied, discounted to 10% on Canadian Oil imports.

• It is not yet clear how these tariffs will interact with other previously announced measures:

  • 25% on steel and aluminium imports

  • 25% on cars and automotive parts

  • 20% previously announced on Chinese imports

  • Future tariff announcements following Section 232 investigations into copper, timber, and pharmaceuticals.

• This week's “hard” labour market data has remained relatively strong. However, the ISM  manufacturing survey slipped back into contraction (49.0) after new orders (45.2) and employment (44.7) fell by more than expected. Prices paid surged to 69.4 as tariff effects are already being felt.

• The president also reiterated his commitment to legislation lowering taxes in a few months’ time, saying that Social Security, Medicare and Medicaid would not be touched, but government spending will be cut and the budget will be “right-sized”.

• S&P500 future 5,506 -3.6%, Nasdaq Comp. 18,877 -4.5%, S&P/ASX200 future 8,019 +0.5% (closed),

• US 2yr 3.85%  -3bps, US 10yr 4.14% -3bps

• AUDUSD 0.6239 -1.0%, EURUSD 1.08 -0.3%, USDJPY 148.4 -0.6%, Gold US$/oz 3,137 +0.66%

  
  

Fin-X View

• This morning's announcement outlined generally higher-than-anticipated tariffs and there were no specific company or sector exclusions. The Federal Reserve will also be constrained in its options to act and is likely to hold rates and tighten financial conditions, making a recession much more likely.

• It is far from clear how these types will operate in practice; whether they will be cumulative or stacked, and how they will apply to complex goods manufactured in several countries. But a drop in imports is anticipated, reducing the trade deficit and strengthening the US dollar in the short term.

• Many countries including the European Union have already reiterated an intention to retaliate so further volatility seems likely.

• An optimistic take would be that these announcements represent the US opening bid in trade negotiations which will ultimately see lower rates applied.

• Alternatively, high tariffs could remain in place to raise revenue and support a long-term plan to broaden and strengthen the US manufacturing base. However, it seems unlikely that these plans will raise enough revenue to offset tax cuts. Moreover, any increase in manufacturing could be more than offset by a reduction in US exports in financial and business services, entertainment, defence and technology, to name a few.

• In the short term, the measures represent a significant increase in trade barriers between the US and the rest of the world. US consumers will now pay additional taxes on imports regardless of the origin.

• In contrast, the rest of the world is still on a path to lower trade barriers between nations. A substantial bifurcation into US and world ex-US markets is a real possibility.

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