Markets complacent as fresh tariff risks loom from Trump’s plans

Uncertainty about US trade policy came back to the fore as Trump flagged 25 per cent tariffs on steel and aluminium but the initial reaction from markets was surprisingly muted.

During the first Trump administration, Australia avoided being hit by a similar Trump tariff of steel and aluminium under a deal brokered by the-then Turnbull government. Picture: Roberto Schmidt / AFP

Uncertainty about US trade policy came back to the fore as US President Donald Trump flagged announcements this week on reciprocal tariffs and 25 per cent tariffs on steel and aluminium.

Both the steel and aluminium tariffs and the reciprocal tariffs – first announced on Friday – will be effective immediately after formal announcements on Monday and Tuesday or Wednesday respectively, Trump told reporters on Sunday.

The initial reaction from markets was surprisingly muted. The Aussie dollar, Mexican peso, Canadian dollar and Australian stocks mostly recovered from intraday falls even as the US dollar and gold rose.

But when it comes to international trade, global markets may have been lulled into a false sense of security by the fact that Trump so far hasn’t done anywhere near as much as he said he would do.

He promptly cancelled 25 per cent tariffs on Columbia this month after it agreed to accept deportation flights.

With equal haste he delayed 25 per cent tariffs on Mexico and Canada by one month after both countries agreed to strengthen their borders against illegal fentanyl and human trafficking.

Those concessions strengthened the perception that the US President sees tariffs as a strategic negotiating tool.

During the first Trump administration, Australia avoided being hit by a similar Trump tariff of steel and aluminium under a deal brokered by the-then Turnbull government.

But while less than previously threatened, additional US tariffs on China went ahead last Tuesday – prompting a retaliation from China that could yet see further tariff increases by the US.

The Wall Street Journal reported that Chinese officials are building a list of US technology companies that can be targeted with antitrust probes and other tools, hoping to influence the tech executives who are heavily represented in President Donald Trump’s orbit.

People familiar with Beijing’s strategy said the goal was to collect as many cards as possible to play in expected negotiations with the Trump administration over US-China issues, including the new tariffs imposed on Chinese goods.

Beijing has already said it is investigating Nvidia and Google over alleged antitrust issues.

Other American companies in its sights include Apple, Silicon Valley technology giant Broadcom and semiconductor-design software vendor Synopsys.

Trump warned last week that tariffs on the EU will “definitely happen” and “pretty soon”.

The outcome of a review of US trade policies due on April 1st.

It’s hard not to conclude that a global trade war is just getting started.

Franklin Templeton Institute head Stephen Dover says investors are bracing for significant shifts in the global economy as new tariffs threaten to escalate trade tensions with key partners, increasing the risk of a full-scale trade war that could disrupt supply chains and increase economic volatility.

Of course the durability of any tariffs remains in question.

However, corporate decision making will be complicated by uncertainty about whether the US is using tariffs as a strategic negotiating tool or whether they signal the start of a global trade war, particularly regarding capital investment, supply chain restructuring and hiring strategies.

“While some domestic producers stand to benefit from reduced foreign competition, companies that rely on tariffed imports- especially those dependent on raw materials- face profit margin pressures,” Mr Dover said. “While several pro-business policies have been implemented since inauguration, the unpredictability of tariff policy could dampen those positives.”

Dover underscores the commitment to restoring US manufacturing, as evidenced by proposed strong tariffs on Chinese imports and 10-20 per cent universal tariffs on all imported products.

“The administration’s actions, even toward allies like Canada and Mexico, highlight a serious push to increase domestic production,” he said.

Such a shift may also broaden the US stock market’s performance, particularly benefiting small-cap companies that operate primarily within the US and have limited reliance on international trade.

But unlike the 1930s, when Smoot-Hawley tariffs exacerbated the Great Depression, the US has a stable money supply, low taxes, business friendly regulations and a more effective Federal Reserve.

Dover says the Fed will act aggressively to manage any fallout from a tariff war.

“The Fed’s vigilance will be key, and we expect it to maintain a data-driven approach to navigate these uncertainties.”

US Fed chair Jerome Powell is due to present his monetary policy testimony in the US on Wednesday. US CPI data are due for release on Thursday.

It comes after the US 10-year bond yield rose 6 basis points to 4.49 per cent on Friday, contributing to a selloff in stocks, after the unemployment rate fell and one-year inflation expectations in the University of Michigan survey rose to a more than two-year high of 4.3 per cent.

“Markets dynamics remain driven by the evolution of the AI complex, the intricacies of US policies, and the Federal Reserve’ asymmetrical (dovish) bias,” said J.P. Morgan Head of Cross Asset Strategy, Fabio Bassi.

Recent volatility around DeepSeek and tariff jitters haven’t derailed his positive outlook on risk assets, especially in the US. Over the short term, he sees lingering volatility on tariff headlines before the April 1st trade review, but keeps his 6,500 as S&P 500 year-end target.

“Overall, we find the broadening of the AI theme and the broadening of the equity rally as positive factors for risk sentiment,” Mr Bassi said. “The uncertainty around tariffs will linger, despite recent delays to Canada and Mexico, and could weigh on sentiment, although we are open-minded regarding the final objective and the negotiation approach.

“Securing concessions from trading partners appears to be a key goal in the tariff negotiations and could prove crucial for Europe and China.”

A dovish Fed outlook wasn’t challenged by the US jobs data and remains an “anchor of our bullish outlook on risk asset” with the CPI is expected to further validate this narrative.

“A shift back to a story of soft landing with additional Fed easing will provide a further boost to sentiment, potentially also unleashing capital markets activity,” Mr Bassi added.