Trump set to reveal major trade reforms: A shift in U.S. global strategy
President Trump is set to announce a series of bold new trade measures today, sparking concern and anticipation among investors and international partners alike. These developments could have a significant impact on U.S. trade relations and cause volatility in global markets.
Sources close to the situation suggest that President Trump has yet to finalise his decision, despite the imminent announcement. The unveiling is set for 20:00 GMT, in the White House Rose Garden. Although the tariffs are being presented as beneficial to workers and intended to boost revenue, doubts remain about whether the true aim is to secure better negotiating terms or permanently alter the U.S.’s trade strategy.
Advisors to the president are reportedly targeting $700 billion annually in tariff revenue, representing one of the most drastic shifts in U.S. trade policy in recent history. Markets have already reacted with declines in equity values, pressure on the dollar, and heightened caution in the corporate bond sector, as reported by the Financial Times.
Sources close to the discussions reveal that the Trump administration is currently considering multiple tariff options. These include a tiered system, a customised reciprocal approach, and a a flat global rate, as reported by Bloomberg.
Each of these potential strategies represents a different way to fulfil the president’s long-standing promise to "level the playing field" in global trade. Tariffs are likely to be applied to goods already on their way to the U.S., prompting immediate concerns about potential disruptions to supply chains. Although enforcement is officially set for midnight, logistical challenges may delay its implementation, as seen with past measures targeting Canadian and auto imports.
Debate within the administration remains intense, highlighting ongoing uncertainty over both the strategic approach and the broader policy goals.
Tiered system
In an alternative tiered model, countries would be categorised into groups according to their current tariffs and non-tariff barriers, with duties set at either 10% or 20%. The highest levies would be reserved for nations considered the worst offenders in terms of protectionist policies.
Customised reciprocal approach
An alternative reciprocal model, previously championed by administration officials, would impose tailored tariffs based on the trade barriers that specific countries place on U.S. exports.
While this approach had been gaining support in recent weeks, it is now said to be losing favour and is no longer the primary option being considered.
Flat global rate
Flat-rate tariffs could be imposed across the board, potentially affecting countries with which the U.S. maintains no trade deficit, including the UK, with which it enjoys a rare trade surplus, according to Bloomberg. While this approach may offer administrative simplicity, it risks provoking widespread retaliatory actions and complicating current trade ties.
Pound’s outlook amidst potential tariff shock: A mixed picture
Should a sharp market downturn follow the introduction of tariffs, GBP might see a decline against the EUR and USD, but could appreciate against the AUD and NZD. Nevertheless, indications suggest a more measured approach to the upcoming announcements, potentially allowing the UK currency to retain its status as a relative 'safe haven' amidst the trade turmoil.
GBP's safe-haven appeal stems largely from the UK's low exposure: the U.S. typically runs a trade surplus with the UK, placing it lower on the list of countries the U.S. aims to overhaul in terms of trade relations. That said, the introduction of a flat, blanket tariff could still create substantial challenges for UK exporters and put the GBP’s resilience to tariffs under strain.
We remain cautious, as severe tariffs could spark a market rout, traditionally weakening GBP against traditional safe havens like the USD, JPY, and CHF. GBP/EUR exchange rate would also likely face pressure in such a broader market sell-off.
EU prepared for retaliation amid growing trade tensions
The European Union has signalled its intention to retaliate should reciprocal tariffs be imposed. In the immediate term, tariffs risk reigniting inflationary pressures. Over the longer term, however, a trade conflict could suppress growth, emerging as a disinflationary factor for Germany and the eurozone as a whole. Germany’s 10-year Bund yield has fallen to its lowest point in four weeks, dipping below 2.7%, reflecting investor caution in light of escalating tensions.
Currently, money markets are pricing in a 75%-80% likelihood of an ECB rate cut in April, though policymakers remain divided. While additional policy easing could place downward pressure on the euro through reduced yield spreads, substantial fiscal stimulus measures could mitigate the effect on growth, limiting the need for aggressive monetary interventions.
