Message from our CIO: The United States significantly increases tariffs

Donald Trump and his administration have chosen shock therapy. The tariff increase announced on April 2 is indeed much higher than what most economists and investors expected. This tariff hike is divided into two parts: a base tax of 10% and an additional tax applied to each trading "partner." This latter tax is primarily determined by each country's trade surplus with the United States. Southeast Asian countries are the most affected by these taxes, such as Vietnam (46%) or Thailand (36%). China is subject to an additional tax of 34%, which is added to the previously announced 20% tax. Imports from the European Union will be increased by 20%, while Switzerland will face tariffs of 31%. However, it should be noted that certain sectors are exempt from new taxes. The pharmaceutical sector is one of them, which should somewhat mitigate the impact on Swiss exports. Semiconductors and energy are also exempt. These measures will result in the average tariff rate on American imports rising to 25%, a rate not seen in nearly a century. A reaction from major partners is expected, particularly from Europe and China. Retaliation is being considered, although bilateral negotiations to reduce these taxes over the coming months are the most likely outcome.

These taxes will inevitably have an economic impact. Global economic forecasts will be revised downward, especially in the United States. Lower investments are expected from American companies, while household consumption could also be penalized due to the inflationary shock these taxes are likely to cause. However, unless there is a significant increase in the unemployment rate in the coming months, our scenario still predicts some resilience in private consumption across the Atlantic. Unless there is an escalation in the trade war, the United States could avoid a recession episode, although a fairly severe economic slowdown seems guaranteed in the coming months. This context should also encourage major central banks to continue easing their monetary policies. We particularly expect further rate cuts from the European Central Bank and the Federal Reserve. Many countries will also consider fiscal stimulus measures to support the most exposed companies and sectors in this trade war.

Following these announcements, Asian and European stock markets show a relatively contained reaction, while the futures market indicates a slightly more pronounced drop at the opening on Wall Street (-3%). In the bond market, yields are easing quite significantly, including in the United States, indicating that investors are more concerned about the negative economic fallout than the temporary rebound in inflation. In the foreign exchange market, the US dollar is taking a hit and is sharply declining against most currencies.