Trump is on fire, global markets tariffied

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist 

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On March 7, U.S. Treasury Scott Bessent said the U.S. economy could be in for a "detox period" as it adjusted to President Donald Trump's transformative policy agenda. The gyrations on Wall Street and beyond on April 3 following Trump's sweeping global tariffs the day before suggest that may be a huge understatement.

U.S. stocks, the dollar and oil cratered on Thursday, bond yields plunged and volatility soared, as Trump's tariffs at a stroke darkened the near-term outlook for spending, investment, corporate earnings, economic activity and growth. 

Trump's tariffs on China are among the highest. Will Beijing risk devaluing the yuan? See below for more, but first, a round up of today's remarkable moves on world markets. 

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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One should never read too much into a single day's trading in financial markets, but some days are so dramatic it's difficult not to. Thursday is one of them.

Declines of more than 4% on Wall Street and near 2% swings in the dollar don't come around too often, and outside of major crises like the Global Financial Crisis or pandemic, they are even rarer. 

So it is a measure of investors' shock at the severity of Trump's tariffs, trepidation over the damage they'll inflict - and, no little disbelief at how they were calculated - that markets gyrated as much as they did on Thursday.

Economist David Beckworth posted on social media platform X that Trump's latest salvo in his global trade war may be "one of the biggest unforced economic policy errors in US history" - a bold claim, perhaps, but one which seems to be resonating.

Analysts are ratcheting down their U.S. growth forecasts, and sub-1% expansion this year is now in view, while recession risks have risen sharply. Rates traders are now pricing in almost 100 basis points of Fed cuts this year and 150 bps by the middle of next year.

As economist Rebecca Harding states, "nobody wins from the trade war." It's a simple but important point - the economic and market outlook everywhere is suddenly bleaker, especially in some of the Asian countries that have been hit with the heaviest duties.

What's more, policymakers find themselves in an even tighter spot. Will the Bank of Japan be so keen to continue with its rate-hiking campaign? Will the European Central Bank or Bank of England be forced to cut rates more than planned if the euro and sterling continue rising? And how does powerhouse China respond?

Part of the problem for everyone - investors, households, businesses and policymakers - is Trump's propensity to change course in the blink of an eye. Some tariffs may be lowered, exempted, or postponed within days, should countries come to the negotiating table and strike a deal with 'Tariff Man'.

Of course if they are maintained, or countries retaliate, the economic and market outlook could darken even more, stoking volatility and uncertainty - good for gold, bonds and short sellers; not so good for stocks, credit and other risky assets. 

If investors are hoping a sense of calm might descend on markets on Friday, think again - the latest U.S. payrolls will be released at 8:30 ET, and a few hours later Fed Chair Jerome Powell delivers a speech on the economic outlook. 

Stock futures around the world are pointing to heavy losses at the open. Buckle up.

What's the most important exchange rate in the world right now? Probably dollar/yuan.

How Beijing responds to the eye-popping tariffs the Trump administration slapped on Chinese exports to the U.S. will be critical not only for China, but also for its 'plus one' trading partners in Asia, and world markets more broadly.   

The total tariff rate on U.S. imported goods from China is now a whopping 54%. If maintained for a reasonable length of time, this will be a financial hit to Beijing that will likely hinder its efforts to address its lingering real estate crisis, boost consumption, build its military might, and fund its myriad investments.

Many studies on behavioral economics, such as those by Daniel Kahneman, have sought to explain the psychology around forecasting. One from last year stood out: 'Overprecision in the Survey of Professional Forecasters' by Sandy Campbell and Don A. Moore at University of California, Berkeley. 

If you have more time to read today, here are a few articles I recommend to help you make sense of what happened in markets today.

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