On U.S. 'Liberation Day' Tariffs and Global Market Turmoil
Last week, U.S. President Donald Trump declared a 'Liberation Day' for American trade, announcing a comprehensive global tariff plan targeting what his administration describes as 'unfair trade practices.' The announcement triggered immediate market turbulence, with major stock indices declining sharply and the VIX volatility index, often called the 'fear index', surging to 45, a level previously seen during the 2008 financial crisis and the 2020 pandemic. The year-to-date VIX data presented below highlights the significant market response to the tariff announcement.
Reactions to the tariffs include:
Federal Reserve Chair Jerome H. Powell: "While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth."
U.S. Treasury Secretary Scott Bessent: “My advice to every country right now is: Do not retaliate. Sit back, take it in, let’s see how it goes. Because if you retaliate, there will be escalation. If you don’t retaliate, this is the high-water mark."
Michael Feroli, JPMorgan Chase Chief US Economist: "We now expect real GDP to contract under the weight of the tariff ... The forecasted contraction in economic activity is expected to depress hiring and over time to lift the unemployment rate to 5.3%
U.S Senator Ted Cruz: A tariff is a tax ... It’s terrible for America ... It would destroy jobs here at home and do real damage to the U.S. economy if we had tariffs everywhere.”
European Commission President Ursula von der Leyen: "We will do everything we can to work towards an agreement with the United States, with the goal of avoiding a trade war that would inevitably weaken the West in favor of other global players."
Neil Bradley, U.S. Chamber of Commerce (Chief Policy Officer): "What we have heard from businesses of all sizes, across all industries, from around the country is that these broad tariffs are a tax increase that will raise prices for American consumers and hurt the economy."
Jay Timmons, National Association of Manufacturers CEO: "The high costs of new tariffs threaten investment, jobs, supply chains and, in turn, America’s ability to outcompete other nations."
OUR TAKE
The 'Liberation Day' tariffs increase uncertainty for businesses and markets, potentially leading to higher consumer prices, supply chain disruptions, and possible retaliatory actions from trading partners.
While the administration cites national security and economic sovereignty goals, these broad tariffs may fall short of their objectives and cause unintended negative consequences.
A more targeted approach could focus on specific unfair practices, prioritize multilateral engagement, and establish clear metrics for evaluating policy effectiveness.