Markets on edge as Trump dubs tariffs pain ‘a little disturbance’

US President Donald Trump is downplaying the fallout from his tariffs, suggesting he will push on with his aggressive trade policy. This isn’t good news for markets.

US President Donald Trump leaves after addressing a joint session of Congress in Washington. Picture: Win McNamee/AFP

Perhaps the most concerning thing for markets in Donald Trump’s address to Congress was his assertion that tariffs will only cause ‘a little disturbance.’

The US President’s words downplaying the risk of reigniting inflation and indeed causing stagflation suggests he will push on with his aggressive trade policy even after the Nasdaq Composite entered “correction” territory and the US 10-year bond yield hit a five-month low.

The strike price on the so-called “Trump put” may be lower than many believe.

Stock market volatility spiked further with the Australian market hitting a 10-week low on Wednesday as the US President continued to make the case for tariffs and China’s ambitious new economic growth targets didn’t immediately impress investors.

Hope of some relief from tariffs emerged when US Commerce Secretary Howard Lutnick said that the US President was set to announce a compromise regarding the 25 per cent levies on Canada and Mexico that started Tuesday along with an additional 10 per cent tariff on China.

US Commerce Secretary Howard Lutnick. Picture: Roberto Schmidt/AFP

Finally, it seemed the US President was taking notice after the S&P 500 suffered its biggest two-day fall this year, the Nasdaq Composite entered a technical correction by falling more than 10 per cent from its bull-market high, and the VIX volatility index spiked to a 10-week high of 26.35 per cent.

“Both the Mexicans and the Canadians were on the phone with me all day today trying to show that they’ll do better, and the President’s listening, because you know he’s very, very fair and very reasonable,” Mr Lutnick told Fox Business.

“So I think he’s going to work something out with them – it’s not going to be a pause, none of that pause stuff, but I think he’s going to figure out … you do more, and I’ll meet you in the middle some way, and we’re going to probably (be) announcing that tomorrow.”

Mr Lutnick’s comments caused an 0.8 per cent intraday rise in S&P 500 futures.

The US 10-year Treasury bond yield – which had fallen a massive 70 basis points in the past seven weeks as investors sought refuge as economic data weakened amid tariff fears – bounced by a very large 15 basis points to 4.25 per cent, aided by the prospect of some relief from a nascent trade war.

But buyers temporarily stepped away from the Australian share market. The S&P/ASX 200 index fell as much as 1.2 per cent to a 10-week low of 8096 points on light volume. It closed down 0.7 per cent at 8141.1 points, its lowest daily close since December 20th.

For the first time in 15 months the ASX punctured its 200-day moving average line, at 8126.

Despite the start of interest rate cuts by the Reserve Bank last month, the Australian market has fallen as much as 6 per cent from a record high of 8615.2 points that was reached three weeks ago.

In comparison, the S&P 500 has fallen 6.7 per cent and the Nasdaq Composite lost 11.1 per cent.

US President Donald Trump’s tariffs on Canada and Mexico have been rolled out. Frederic J. Brown/AFP

Mr Lutnick didn’t say exactly what Trump was considering after 25 per cent tariffs on Canada and Mexico took effect on Tuesday. But he said tariffs would likely land “somewhere in the middle” with Trump “moving with the Canadians and Mexicans, but not all the way.”

He appeared to dismiss the idea that the tariffs would be fully rolled back, but pointed to the US-Mexico-Canada trade deal negotiated during Trump’s first term.

“If you live under those rules, then the President is considering giving you relief,” Lutnick said. “If you haven’t lived under those rules, well, then you have to pay the tariff.”

However, there was no sign of compromise on tariffs in the US President’s address to Congress.

Rather, he doubled down on what’s already the most aggressive US trade policy since the 1940s.

Mr Trump said products not made in the US will be subject to a tariff “in some cases rather large ones”, while also reiterating his call for 25 per cent tariffs on aluminium, copper and steel and or so-called “reciprocal tariffs” to start on April 2nd, after a comprehensive review of US trade policy.

“Tariffs are about making America rich again and making America great again. And it’s happening, and it will happen rather quickly,” Trump said in the longest-ever presidential

address to a joint session of Congress.

“There’ll be a little disturbance, but we’re okay with that. It won’t be much.”

It came after a downturn in US economic data in recent weeks. On Monday, the Atlanta Federal Reserve cut its “GDP Nowcast” of annualised US economic growth for the March quarter to minus 2.8 per cent from 1.5 per cent after a bigger than expected fall in the important ISM Manufacturing survey to a near stall speed of 50.3 points. US ISM Services sector data were due on Wednesday.

“This is seemingly turning into an all-out trade war,” said Nigel Green, CEO of global financial advisory giant, deVere Group.

“The immediate market reaction to Trump’s sweeping tariffs on Canada and Mexico was stark, with declines across major indices, reflecting investor fears of a prolonged and damaging standoff.

“The true extent of the fallout, however, has yet to be fully realised, especially as wider reciprocal tariffs are set to be rolled on April 2, according to Trump in his address.”

“History has proven that protectionist policies of this magnitude don’t end in prosperity, but in economic isolation, slower growth, and inflationary pressures that ultimately hit consumers and businesses hardest. Tariffs are not a win for American workers or businesses — they’re taxes.”

Shipping containers are stacked high at the Port of Long Beach in California. Picture: Frederic J. Brown/AFP

It came as China set its economic growth goal at about 5 per cent for 2025, signalling that the world’s number two economy plans more stimulus amid a worsening trade war with the US.

Premier Li Qiang announced the target as he delivered the government’s annual work report to the national parliament in Beijing on Wednesday.

China also set this year’s fiscal deficit target to around 4 per cent of gross domestic product — the highest level in more than three decades, according to the work report.