Trump's "Reciprocal Tariffs" Trigger Global Financial Market Turmoil

Trump's "Reciprocal Tariffs" Trigger Global Financial Market TurmoilAffected by Trump's "reciprocal tariffs," international financial markets are in turmoil, with stocks, foreign exchange, precious metals, and commodity futures such as crude oil all experiencing continuous declines.As of press time, the USD/JPY has touched 146, a new low since October of last year, down 2

Trump's "Reciprocal Tariffs" Trigger Global Financial Market Turmoil

Affected by Trump's "reciprocal tariffs," international financial markets are in turmoil, with stocks, foreign exchange, precious metals, and commodity futures such as crude oil all experiencing continuous declines.

As of press time, the USD/JPY has touched 146, a new low since October of last year, down 2.18% on the day. The 5-year U.S. Treasury yield fell 11 basis points to 3.77%, and the 10-year U.S. Treasury yield fell 10 basis points to 4.03% on the day.

Commodities also continued their decline. New York gold futures fell more than 2% intraday, currently at $3,097/ounce. Spot gold fell 1.7% intraday, currently at $3,078/ounce. Spot silver plummeted 5% intraday, currently at $32.19/ounce. Three-month copper on the London Metal Exchange (LME) fell sharply by 3% to $9,405 per ton. Brent crude oil's decline expanded to 6.7%, falling below $70/barrel, a new low since March 20. WTI crude fell more than 7%.

European stock markets also opened sharply lower. As of press time, the German DAX index fell 2.4%, the UK FTSE 100 index fell about 1.6%, the French CAC40 index fell nearly 3%, and the Euro Stoxx 50 index also fell nearly 3%. Asian stock markets generally fell on Thursday. At the close, the Nikkei 225 index closed down 2.77% at 34,735.93 points, the Korean KOSPI fell 0.76% to 2,486.7 points, and the Australian S&P 200 index fell 0.94% to 7,859.7 points. In addition, the price of Bitcoin experienced a sharp drop, falling from a high of $88,500 to a low of $82,100 within 24 hours, a drop of more than 7%, and many other cryptocurrencies also experienced sharp declines.

Trump's Reciprocal Tariffs

On April 2nd, local time, Trump signed an executive order on "reciprocal tariffs" at the White House, announcing that the United States would impose a 10% "minimum benchmark tariff" on its trade partners, and higher tariffs on certain trade partners.

According to White House documents, this round of tariffs will be implemented in two phases: the 10% benchmark rate will take effect on April 5, and the higher reciprocal rates will begin on April 9. In terms of specific tariff rates, Cambodia is 49%, Vietnam is 46%, Thailand is 36%, Indonesia is 32%, Switzerland is 31%, South Africa is 30%, India is 26%, South Korea is 25%, Japan is 24%, EU member states are 20%, the United Kingdom is 10%, and Brazil is 10%.

CICC (China International Capital Corporation) stated that Trump's announcement of "reciprocal tariffs" exceeded market expectations. If these tariffs are fully implemented, the effective tariff rate in the United States may increase by 22.7 percentage points from 2.4% in 2024 to 25.1%. This would exceed the tariff level after the implementation of the Smoot-Hawley Tariff Act of 1930, increasing uncertainty and market concerns, and exacerbating the risk of "stagflation" in the U.S. economy. Although it may bring more than $700 billion in fiscal revenue, facing the risk of "stagflation," the Federal Reserve may find it difficult to cut interest rates in the short term, which will further increase the risk of economic downturn and increase downward pressure on the market.

Dongwu Securities pointed out that this round of U.S. reciprocal tariffs is a challenge to the most-favored-nation tariff treatment principle, and may cause the global multilateral trading system to revert to bilateral trade or regional trade. The imposition of this round of reciprocal tariffs means that the United States has expanded from imposing "unilateral tariffs" on a few countries to imposing "systemic tariffs" on major economies. This move indicates that the United States may completely abandon the most-favored-nation tariff treatment, shake the foundation of the global multilateral trading system developed over the past seven decades, seriously disrupt global trade order, and cause the global multilateral trading system to revert to bilateral trade or regional trade.

The biggest impact of this round of reciprocal tariffs lies in the impact on the existing global tariff and trade system, rather than solely on China's exports. After the imposition of reciprocal tariffs, major economies such as China, Canada, and the EU may further introduce countermeasures, resulting in a spiral increase in tariff rates in various countries, reconstructing the existing tariff system, and its impact on global trade and economic growth of various countries is difficult to estimate.

Zheshang Securities mentioned in a research report that China is expected to increase policy offsetting. It is expected that China will respond in the following ways in the future: First, the two-way fluctuation space of the exchange rate will increase; second, there is a possibility of issuing additional special treasury bonds, mainly for "two new" projects and commercial banks to supplement capital; and third, there may be a reserve requirement ratio cut in April to respond.

What Trade Actions Will the U.S. Take Next?

Dongwu Securities pointed out in a research report that the "reciprocal tariffs" that landed on April 2 are a concentrated embodiment of Trump 2.0's new tariff policy. From the understanding of the above-mentioned reciprocal tariffs, its core idea is first to solve the U.S. trade imbalance and trade inequality problems, second, as a tool for diplomatic negotiations, and to increase federal government fiscal revenue. As for national economic and technological security issues, the focus should be on specific strategic commodities and strategic industries, which is not the focus of reciprocal tariffs this time.

In addition, considering that the framework review report on "America First Trade Policy" released by the White House should be submitted and announced soon, and the proposal to revoke China's permanent normal trade relations status, which has gradually received attention and discussion, refer to existing official documents to explore the possible focus of the next U.S. trade policy towards China.

Dongwu Securities said that comprehensively considering the implementation of the U.S. trade policy issues raised by Trump since he took office, it can be found that as of now, issues related to establishing a foreign tax bureau to collect tariffs (increasing tariff revenue), economic and security reviews of industry and manufacturing, security reviews related to foreign investment, and issues related to revoking China's permanent normal trade relations status have not been fully implemented. The above areas may be the key focus of subsequent U.S. trade policy actions.

Yuekai Securities mentioned in a research report that Trump's tariff policy will be upgraded. Yuekai Securities analyzed that since taking office, Trump has launched multiple rounds of tariff actions against the world in just over two months. Considering the ongoing trade investigations in the United States and Trump's recent tariff threats, the United States' tariff policy towards global economies will be upgraded in the future.

Yuekai Securities mentioned that next, the United States may impose tariffs on key commodities imported from the world, such as copper, wood, semiconductors, and agricultural products, and impose a new round of tariffs on trade partners such as EU economies and China. For key commodities, based on Section 232 of the Trade Expansion Act of 1962, the U.S. Department of Commerce is conducting trade investigations into copper and wood products imported into the United States, and Trump may subsequently impose tariffs on imported copper and wood based on the results of the investigations. In addition, Trump has recently issued tariff threats on key commodities such as semiconductors and agricultural products. For trade partners, the United States is conducting a digital consumption tax investigation targeting some EU economies. In addition, Trump authorized the Secretary of State to decide whether to impose a 25% secondary tariff on economies that import Venezuelan oil, and China is the largest buyer of Venezuelan oil.

Detailed Market Data

The following is more detailed market data illustrating the comprehensive impact of Trump's "reciprocal tariffs" on global financial markets:

Foreign Exchange Market: The USD/JPY fell sharply, breaking below the 146 level, with an intraday decline of more than 2%. Other major currency pairs also experienced varying degrees of decline against the dollar, indicating a decline in investor confidence in the dollar.

Bond Market: The U.S. Treasury yield curve flattened, with significant declines in both 5-year and 10-year Treasury yields, indicating increased market risk aversion and investors flocking to safe-haven assets.

Precious Metals Market: Gold and silver prices both fell sharply, with silver's decline being particularly significant, exceeding 5%. Precious metals, as traditional safe-haven assets, usually rise during market turmoil, but this time they fell, indicating increased market concerns about