Tariffs Rollercoaster

The baseline announcement was for 10% universal tariffs (effective as from 5-Apr-25), but then came the country-specific reciprocal tariffs (effective as from 9-Apr-25) to those placed on US largest trade partners:

Top 5 Trade Partners	Tariff	2024 US imports ↓	Trade deficit
1. European Union	20%	$605.76B	-$235.57B
2. China	145%	$438.95B	-$295.40B
3. Canada	10%	$412.70B	-$63.30B
4. Japan	24%	$148.21B	-$68.47B
5. Vietnam	46%	$136.56B	-$123.46B
TOTAL		$3,267bn	-$1.2T

Despite the 90-day pause offered by Donald Trump’s administration to facilitate trade negotiations, US tariff rates remain at their highest since the 1930s, a drastic change in US trade policies that is reshaping globalisation as we currently know it.

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The 2025 US tariffs have not only revisited but have exceeded the tariff levels set by the Smoot-Hawley Act (average tariff rate ῀19% versus ῀24% in 2025) which was known to have led the US economy in a Great Depression. However, the context differs; below briefly:

1930 (Smoot-Hawley)	2025 US Tariff
US unemployment spiked from 8.7% in 1930 to 15.9% in 1931	US unemployment currently low at 4.1%
Aim: protect US farmers & industries from collapsing demand (broad protectionism)	Aim: Reduce trade deficit, re-shore manufacturing & assert geopolitical leverage (strategic/targeted)
Massive retaliation → over 25 countries imposed their own tariffs on US goods which turned US trade surplus turned into deficit	Spark diplomatic tensions but global trade institutions (e.g. WTO), alliances & agreements limit escalations.

The fact that the 90-day slowdown in reciprocal-tariff implementation was triggered not by an equity bear market, but by the US Treasury market disruption, reveals this administration’s Achilles’ heel. With more than $10 trillion in US debt up for refinancing, America’s credit costs are critical to deficits, budget deals and the upcoming tax bill. While roiling Treasuries may be temporary, there is more fundamental consequence from the trade war (not just in terms of shift in capital flows).

Tariff-driven inflation is diverging across economies, with the US facing mounting pressures while disinflation persists elsewhere. While in theory, US tariffs should strengthen the USD and weakened targeted currencies, in reality, the opposite has occurred – the USD depreciated while developed market currencies have appreciated.

The US is waging a trade war against the rest of the world, meaning nearly all its imports are subject to tariffs. In contrast, other countries keep trading among themselves. Inflation is therefore set to be more severe in the US than abroad and a weaker USD will compound this effect, while stronger currencies elsewhere will blunt imported inflation abroad. Switzerland is a notable example. Inflation is just 0.3% y/y. A stronger CHF has deepened deflationary pressures, and Swiss 2-year yields turned negative.