The American President promised it, and he did it. On April 2, Donald Trump announced tariffs against the rest of the world, which are supposed to free American industry from the threat of imported products.
These duties are presented lightly, but they will disrupt global supply chains. This will not fail to impact the ability of companies to make a profit. The markets are aware of this and are heading downwards. What to do?
The United States chooses the winners
The minimum level for the light reciprocal tariffs announced by Donald Trump against the rest of the world is 10%.
Its basic idea is to tax the different countries at 50% of what they tax American production. The formula used is questionable, to say the least. It is challenging to consider customs and non-tariff tariffs and other policies that constitute obstacles to free trade, elements that are difficult to quantify.
Therefore, the White House is basing itself on the level necessary to rebalance foreign trade. Given the vitality of American demand and the weakness of domestic demand in the countries that supply the United States, such a rebalancing is not at all obvious.
The base level of 10% is a kind of access tax for the privilege of selling to the vast American market. However, it is reserved for countries that the White House believes have few barriers to free trade.
Others will be asked to pay significantly more, and this is undoubtedly one of the most perverse effects of these new tariffs: the United States chooses winners and losers, invalidating with the stroke of a pen the diversification strategies of many companies, regardless of the relationship established between the United States and the targeted countries.
Asia is a particular aim
The United Kingdom, which exports relatively few goods to the United States, and Brazil are among the countries subject to the minimum 10% - surprising given the tense relations between President Lula and the White House.
By limiting tariffs on Brazilian steel and agricultural products to 10%, Donald Trump wants to limit the impact of customs duties on food prices. However, doing so offers the South American giant a significant competitive advantage. Conversely, Asia will be the most impacted by customs duties. There is, of course, China, the bête noire of the United States. For her, the new customs duty of 34% is in addition to the 20% already in place. As a result, the country will have to deal with a total of 54%.
This is a high-level issue that will certainly be subject to negotiation in the coming days and weeks since China is one of the few countries with solid arguments to undermine the United States.
While the approach to China is not particularly surprising – the Chinese stock market has reacted better than most other exchanges in Asia and elsewhere – the approach to the rest of other Asian players is devastating.
Tariffs of 46% and 49% against Vietnam and Cambodia are destroying the diversification strategies of many companies that were looking for a cheap alternative to China. Unsurprisingly, the Vietnamese stock market had the most impact the day after the announcement (-5.4%).
Europe and Japan sent back-to-back
With customs duties against it set at 20%, the European Union is doing better than others. It is gaining a slight competitive advantage over some of its competitors, whether Asian (Japan 24%, South Korea 25%) or European (Switzerland 31%). It is a safe bet that negotiations will also occur here shortly.
The exclusion of the US defence sector from the European rearmament programme could be an important development. However, all this will not console the many companies on the Old Continent, faced with weak demand in Europe and Asian markets, who are counting on the American market to generate their turnover.
This reasoning also applies to Japanese and Korean producers. Domestic demand is weak, and these countries are suffering from the restrictions imposed by the United States on their exports to China. To make matters worse, they will have to face a surge of Chinese production on alternative markets, which will no longer find takers in the United States.
Therefore, it is no surprise that the Nikkei of the Japanese stock exchange and the Kospi of the Seoul stock exchange were among the biggest losers of the day, down about 4% and 3%, respectively.
A profound change
April 2, Liberation Day, marks a profound change in the dynamics of world trade. We knew the United States' desire to withdraw into itself. But no one knew how much they would be willing to sacrifice their success to achieve this. Will these measures help boost industrial employment in the United States? It's possible. But at this point, we have to face the facts: this sector is not the one that makes the country a world power.
Its strength lies elsewhere, in its capacity for innovation, its risk appetite, which attracts brains and good ideas from all over the world, and in its tech giants, which the world envies.
But as far as property is concerned, the country has chosen to close in on itself. Abandoning all hope of being competitive, he eliminates as much as possible a competition that could teach him things.
This is a huge loss for the United States, which will weigh on its capacity for innovation and on the quality of life of Americans, who will have to make do with less efficient and more expensive alternatives.
The automotive market example is telling: at a time when the sector is struggling, the Chinese giant BYD is experiencing a good increase in its share price. Its capacity for innovation and new technologies has much to do with it. However, choosing without the US market (thus not being exposed to the vagaries of US politics) also offers investors greater visibility for the future. Others will be tempted to follow his example.
Expect impacts in the stock market
Tariffs are a halt to global trade as we know it.
The next few months will mark a period of enormous turbulence, with negotiations at the political level and, just as importantly, the business world acting to adapt as best as possible to this new reality.
All this will impact companies' profits and stock market prices. For those who want to avoid growing risks and prefer to take a more defensive approach, government bonds - particularly US bonds and increasingly European bonds, as the yields on offer rise - are an attractive alternative to equities at this stage.
However, investors with a medium- and long-term vision should not overlook the immense ability of human beings to adapt to new circumstances. A capacity that will allow companies to bounce back once new balances have been found. So now is not the time to panic.