US president Donald Trump’s ‘Liberation Day’ has increased the risk of a US and global recession.
This is according to EFG deputy chief investment officer & global head of research Daniel Murray, who warned that “the road to hell is famously paved with good intentions”.
President Trump announced a 10% universal baseline tariff on nearly all goods imported into the US, starting April 5.
There are also reciprocal tariffs for around 60 countries, including China, accused of maintaining large trade surpluses or unfair trading barriers against the US, starting from April 9.
China faces an additional 34% tariff, pushing its total levy above 50%, while Europe and Japan face 20% and 24%, respectively.
The UK faces a 10% tariff, India has received a 26% tariff and Switzerland 34%.
Murray explained that tariffs were applied to a broader range of countries, including US allies, and at “higher rates than had been expected”.
The move is based on the assumption that tariffs will raise government revenues, thereby reducing the size of the budget deficit and potentially allowing room for tax cuts elsewhere, while encouraging more domestic investment and production.
“While these might be worthy aims, history strongly suggests that such a naive approach to trade policy does not end well,” said Murray.
Morningstar chief equity strategist Michael Field added: “That Asian countries got hit much harder than Europe will be of no consolation to businesses here.
“A 20% tariff on all European goods is potentially devastating for many industries, if indeed these tariffs are permanent and fixed in nature.”
Aberdeen chief economist Paul Diggle, meanwhile, believes this could just be the start: “There is a meaningful risk that the announcements yesterday, as dramatic as they were, do not represent ‘peak tariffs’.
“We still think additional sector-specific tariffs are coming, including on semiconductors, copper, lumber and pharmaceuticals.
“Additionally, the Executive Order provides the president with the right to modify tariff rates in the event of retaliatory measures, meaning rates on some trade partners could be pushed higher still.
“The net impact on the US economy will almost certainly be stagflation, although the magnitudes of the price level increase and GDP hit are hard to pin down.”
Some countries and regions have already indicated that they will be forced to implement retaliatory tariffs on the US, with the UK also drawing up retaliation tariffs.
The market’s interpretation of the tariffs has resulted in the Asian markets experiencing significant declines overnight, with equity index futures being meaningfully lower almost everywhere. The S&P500 future is down around 3%.
