There is no doubt that today’s update from President Trump on tariffs imposed by the United States on imports from trading partners could prove pivotal for financial markets in the year ahead. Investors and traders alike have been focused on new government policies since the election was won back in November, particularly regarding trade implications.
It now feels like today’s updates from the President could set the path for global trade over the next few years. However, as always, we must acknowledge that he may change his mind at any stage. But from the propaganda surrounding this announcement, it does feel like today’s updates could be firm, especially as they will take effect soon.
Several options are being assessed by the market, but the three potential outcomes below seem the most likely:
- Sweeping Flat Rate Tariffs – All trading partners and goods would have a set rate imposed by the U.S., with 20% being a figure mentioned several times by government officials.
- Tiered Tariffs – Separate tariff levies would be placed on goods depending on each country’s tariff and non-tariff barriers to U.S. goods.
- Targeted Tariffs – Specific tariffs would be placed on specific goods or trading partners. This approach would be more complex but would also provide greater flexibility.
Traders are preparing for a very busy session at the end of the day in the U.S. and tomorrow morning in Asia, as they will have the first opportunity to react to the tariff updates. The overall sentiment in the market is that volatility is expected, and there is strong hope that the full update will provide more certainty.
In general, investors will assess the severity of tariff implementation and how it will affect goods and services on a country-by-country basis. Many believe this will present great trading opportunities.
- Sweeping High Flat Rate Tariffs (20%+) across the board would likely have the hardest impact but would also provide certainty for the markets. Expect bonds to rise, stocks to drop, and more risk-off trades in currencies.
- Sweeping Lower Flat Rate Tariffs (less than 20%) would probably be well received by investors, potentially reversing recent market moves. Stocks could rally, bonds could fall, and risk-on trades across FX might gain traction.
- Tiered Tariffs – This scenario introduces complexity, as traders would have to analyze tariff details carefully. Expect more volatility and fewer straightforward market moves. FX traders will likely seek cross-currency opportunities by buying jurisdictions with lower tariff implementations while selling those facing higher tariffs.
- Targeted Tariffs – This option provides the least certainty for markets and will likely increase volatility as investors digest the full implications on a country-by-country basis. As mentioned above, FX cross-currency opportunities could be significant.
Overall, traders anticipate strong market movements while the updates are being released and in the sessions afterward as the market processes all available information. Expect particular focus on Mexican, Canadian, Chinese, and European markets, as these could present the best trading opportunities both in the short term (immediate updates) and for longer-term trades.
