US stocks surged on hopes of a less hawkish Trump trade war

·       But Wall Street is also concerned about Trump tariff uncertainty amid various types of tariffs: Primary, Secondary, Sectoral, Reciprocal, and Targeted

·       Trump may be also confused about his strategy to use tariffs as it will be eventually borne by US importers and consumers despite his narrative of collection tariffs from exporters through ERS

·       Trump may eventually roll back his hawkish tariff agenda on 2nd April, at least partially to pave the way for reconciliation rather than excessive confrontation

·       Tariff Man Trump’s threat of reciprocal tariffs is also working as tariff King India is now ready to reduce tariffs on US goods drastically

On Friday, March 21, 2025, Wall Street Futures edged up after a volatile day of trading. Early Friday, US stocks crumbled on Trump’s April 2, 2025 ‘Liberation Day’ comments about the implementation of reciprocal tariffs and a report that Trump is unmoved to craft a tariff deal despite huge pressure from both Wall Street and Main Street. But later Wall Street Futures recovered as Trump said there would be ‘some flexibility’ on tariffs implementation.  Trump mentioned that he gave a one-month extension for US auto tariffs last month at the last minute upon the request of US automakers to prepare for tariffs and potential disruption in existing supply chains. Eventually Wall Street edged up Friday.

Wall Street Futures were quite volatile early Friday amid a "quadruple witching" event, during which stock options, index futures, index options, and single-stock futures all expire. FedEx and Nike tumbled on subdued guidance, while Boeing surged on US Airforce order of next-generation fighter jet. Wall Street was also dragged by guidance warnings from economic bellwethers across multiple industries. The Fed and Wall Street as well as Main Street are now quite concerned about a high potential soft landing of the US economy and a stagflation-like situation down the road amid Trump policy uncertainty in trade, tariffs, immigration, deportations, regulations and also fiscal policies.

Fast forward to Monday, March 24, 2025, Wall Street Futures gained amid a report that megalomaniac Tariff Man Trump may be planning a less hawkish approach for his reciprocal tariffs narratives on April 2, 2025, the US ‘Tariff Liberation Day’. Trump may apply sectoral and targeted tariffs rather than an all-out tariff nuke. The Trump admin may exclude sector-specific tariffs from the reciprocal levies planned from the ‘Liberation Day’.

The report President Trump may impose a 25% tariff on imports such as automobiles, semiconductors, and pharmaceuticals. However, following lobbying efforts by major U.S. automakers, some auto tariffs have been delayed, and sector-specific tariffs are now unlikely to be announced on April 2. Despite this, the unveiling of some reciprocal tariff measures remains planned for that date, though the situation is still evolving. The White House has yet to comment on these reports.

The report said Trump will announce widespread reciprocal tariffs on nations or blocs but is set to exclude some, and - as of now - the administration is not planning separate, sectoral-specific tariffs to be unveiled at the same event, as Trump had once teased, officials said.

Risk trade sentiment was as the next round of US tariffs due April 2 is poised to be more targeted than the sprawling, fully global effort Trump has otherwise mused about, according to officials familiar with the matter. Still, the market remains on edge with officials in China and Australia warning of widespread shocks to the global economy from US trade policy.

As per reports, Trump plans to announce 'Liberation Day' tariffs on April 2 as retaliation for tariffs and barriers imposed by other countries, including long-standing US allies like India. Trump may announce widespread reciprocal tariffs on nations or blocs, but some will be excluded, and the administration is not planning separate, sector-specific tariffs to be unveiled at the same event, as Trump previously hinted.

The adjustment in the White House's tariff strategy, as reported by the WSJ, indicates a shift from broad, industry-specific tariffs (e.g., on automobiles, semiconductors, or pharmaceuticals) to a more focused approach targeting reciprocal levies on countries with significant trade relationships with the US. This is less hawkish Trump trade war policy as highly expected by us as Trump may have realized that no exporter will pay these tariffs to any US authority. These tariffs will be paid by US importers and eventually US consumers. Trump is thus again blinking on his tariffs rhetorics. This recalibration likely reflects a response to market jitters and economic concerns, aiming to balance trade reciprocity with minimizing disruption to key US industries.

Again on Monday, March 24, 2025, Wall Street Futures stumbled soon after the US spot market opening after Trump announced another new type of tariff called ‘Secondary Tariff’ on Venezuela’s oil & gas export customers countries globally.

Trump Truthed:

“President Donald J. Trump announced today that the United States of America will be putting what is known as a Secondary Tariff on the Country of Venezuela, for numerous reasons, including the fact that Venezuela has purposefully and deceitfully sent to the United States, undercover, tens of thousands of high level, and other, criminals, many of whom are murderers and people of a very violent nature. Among the gangs they sent to the United States, is Tren de Aragua, which has been given the designation of “Foreign Terrorist Organization.” We are in the process of returning them to Venezuela — It is a big task! In addition, Venezuela has been very hostile to the United States and the Freedoms that we espouse.

Therefore, any Country that purchases Oil and/or Gas from Venezuela will be forced to pay a Tariff of 25% to the United States on any Trade they do with our Country. All documentation will be signed and registered, and the Tariff will take place on April 2nd, 2025, LIBERATION DAY IN AMERICA. Please let this notification serve to represent that the Department of Homeland Security, Border Patrol, and all other Law Enforcement Agencies within our Country have been so notified. Thank you for your attention to this matter!”

As a result of Trump’s latest Secondary tariff threats, USD surged, while Wall Street Futures and Gold stumbled. The market is confused about the wider impact of Trump’s Secondary tariff on countries like China, which is a big customer of Venezuelan oil & gas. At face value, US tariffs on China would be almost 60% if we add previous tariffs under Trump 1.0, Biden and Trump 2.0. Similarly, Indian and Indian private and public refineries may be also affected.

The market is confused now about Trump’s variety of tariffs. As of March 25, 2025, President Donald Trump has announced a series of targeted, reciprocal, sectoral, and secondary tariffs in an attempt to use US demand and tariffs threat as leverage to score not only economic issues but also various geopolitical issues from illegal immigration, drug trafficking and even alleged sending of high profile international dreaded criminals to the US.

Australia’s Treasurer Jim Chalmers warned the impact of the new US administration’s policies will have a “seismic” impact on the global economy, while Chinese Premier Li Qiang said the country is prepared for “shocks that exceed expectations.”

Reciprocal Tariffs

Trump has been pushing forward with his "Fair and Reciprocal Plan," which aims to match U.S. tariffs to those imposed by trading partners on American goods. On February 13, 2025, he signed a memorandum directing his administration to develop this plan, with a report due by April 1, 2025. He has repeatedly stated that these reciprocal tariffs will take effect on April 2, 2025, a date he has dubbed "Liberation Day" for the U.S. economy.

The White House has confirmed this timeline, emphasizing that unless trading partners equalize their tariff and non-tariff barriers with the U.S. beforehand, these tariffs will be implemented. The plan involves calculating rates based not only on foreign tariffs but also on non-tariff barriers like VAT/GST, state subsidies, regulations, and exchange rates. However, recent comments from Treasury Secretary Scott Bessent on March 18 suggested some flexibility—countries might negotiate to avoid these tariffs before the deadline, though the White House clarified that any such deals must be finalized before April 2 to prevent activation.

Scheduled to take effect on April 2, 2025, these tariffs are designed to match the tariffs imposed by other countries on U.S. goods. The administration plans to implement these measures on a targeted set of nations that account for the majority of U.S. foreign trade. This approach reflects a shift from broader sector-based tariffs to more individualized reciprocal tariffs, focusing on countries with significant trade barriers contributing to the U.S. trade deficit. Trump plans to impose reciprocal tariffs on April 2, which he refers to as "Liberation Day." These tariffs aim to match foreign nations' import taxes dollar for dollar. If Trump’s Reciprocal tariffs are implemented at face value, Tariff King India may be the worst sufferer.

Exemptions Possible: Trump hinted at offering exemptions to some countries if they lower their tariffs or relocate manufacturing to the U.S.

Sectoral Tariffs:

In addition to reciprocal tariffs, Trump has promised sectoral tariffs targeting specific industries, also set to begin on April 2, 2025. Speaking aboard Air Force One on March 16, he confirmed that both reciprocal and sectoral tariffs would be imposed, with a focus on sectors like automobiles, steel, aluminum, microprocessors, and pharmaceuticals. As per Trump, these measures aim to bolster domestic production in critical industries, ensuring national security and economic resilience in times of crisis. ​

Earlier actions provide context: a 25% tariff on global steel and aluminum imports was reinstated on March 12, 2025, with no exemptions, signaling his intent to protect these industries. Auto tariffs, previously threatened at 25%, were delayed for a month for major U.S. automakers in early March, but Trump has warned of their inclusion in the April 2 rollout. These sectoral tariffs could either be layered atop reciprocal tariffs or applied independently, though specifics remain unclear as the administration finalizes details.

Delayed Implementation: Sector-specific tariffs on autos, pharmaceuticals, and semiconductors are unlikely to be announced on April 2; instead, they may be introduced in the "very near future" (as told by Trump).

Future Plans: Tariffs on lumber and semiconductor chips are anticipated "down the line

Secondary Tariffs:

On March 24, 2025, President Trump introduced through Truth social media posting a 25% tariff on any country purchasing oil or gas from Venezuela. This 'secondary tariff' is intended to pressure nations supporting Venezuela's energy sector and to address concerns about the Venezuelan government's policies.

Venezuela-Related Tariffs: The 25% tariff on countries trading with Venezuela is an example of a secondary tariff, aimed at punishing not just Venezuela but also its trading partner. Countries importing Venezuelan crude, such as China, India, Spain, and Malaysia, are particularly affected by this measure if implemented at face value. But Trump may mean 25% tariffs on refined petroleum products (gasoline, diesel etc) from Venezuelan oil if it is exported to the US by Chinese or Indian refiners.

On March 24, 2025, Trump announced a ‘secondary tariff’ or rather than ‘Secondary Sanction’ aimed at Venezuela, effective April 2. This 25% tariff will apply to any country purchasing Venezuelan oil or gas when trading with the U.S., intended to pressure nations away from dealings with Venezuela. This marks a distinct category of tariffs linked to geopolitical strategy rather than direct trade imbalances, broadening the scope of Trump’s tariff agenda.

Trump’s Targeted Tariffs Approach

Trump’s tariffs have already shown a targeted approach. Since February 4, 2025, a 20% tariff has been in effect on all Chinese imports, escalating to include electronics like smartphones and laptops by March 4. On March 4, he also imposed 25% tariffs on imports from Canada and Mexico, initially tied to fentanyl trafficking concerns, though a one-month reprieve was granted for goods compliant with the USMCA (CUSMA), pushing their full effect to April 2 unless resolved. These moves indicate a strategy of targeting key trading partners and specific issues, with Canada, Mexico, and China as focal points due to trade deficits and security concerns. Overall, Trump's tariff strategy remains dynamic, with ongoing adjustments and potential delays in implementation. This has led to market volatility and uncertainty for businesses and investors.

Market Reactions:

The announcement of a more targeted approach to tariffs has led to positive responses in financial markets. Investors anticipate that the focused measures will mitigate potential widespread economic disruptions, resulting in some gains in US stock indices. ​

As of March 24, 2025, the Trump administration is still refining the reciprocal tariff plan, with the U.S. Trade Representative (USTR) and Commerce Department grappling with complex calculations involving 186 World Customs Organization members. Retaliation is mounting: Canada imposed $20.7 billion in tariffs on U.S. goods by March 19, and the EU is set to reimpose $24 billion in tariffs starting April 1, with more planned for April 13. Global markets are volatile, with the OECD forecasting economic slowdowns in North America due to these policies, predicting a 1.3% contraction in Mexico’s economy and slower U.S. growth. Inflation concerns persist, with economists warning of price hikes for U.S. consumers, evidenced by Target’s announcement of imminent price increases on Mexican produce like avocados.

Trump remains defiant, framing these tariffs as a means to boost U.S. manufacturing and reduce the trade deficit, though some allies, like the UK, are opting for diplomacy over retaliation. The final details of the April 2 tariffs—rates, targeted countries, and sectoral specifics—are still being finalized, with Howard Lutnick, Trump’s Commerce Secretary nominee, indicating readiness by April 1. Until then, uncertainty continues to drive economic and diplomatic tensions. Trump’s Trade war policies are also causing a counter-nationalist sentiment in favor of incumbent governments like Mexico, Canada, France etc.

Trump may give a lot of countries breaks on tariffs.

Trump suggested on Monday he'll carve out several exemptions from next week's reciprocal tariff announcement. He also pointed out that additional tariffs were coming "over the next few days," including additional levies on autos, lumber, and chips: "I may give a lot of countries breaks, but it's reciprocal, but we might be even nicer than that. You know we've been very nice to a lot of countries for a long time. But I call it Liberation Day. April 2nd is liberation day.”

On late Monday March 24, 2025, Trump signed an executive order imposing a 25% tariff on any nation that purchases oil from Venezuela, effective April 2: "On or after April 2, 2025, a tariff of 25 percent may be imposed on all goods imported into the United States from any country that imports Venezuelan oil, whether directly from Venezuela or indirectly through third parties”. Meanwhile Venezuela said earlier today that it "firmly and categorically" rejects what it described as Trump's "arbitrary, illegal and desperate measure."

Trump's trade war may cause a synchronized global slowdown.

A significant increase in US tariffs on imports from Canada, Mexico, the EU, and China, if fully implemented, will pressure revenue growth and profitability for most corporate sectors globally, although the magnitude of the impact will vary. Direct implications will mostly depend on the level of trade exposure, while the second-order effect of a weakening world economy will have broader consequences.

On Monday, March 24, in the Trump Cabinet meeting, the US Commerce Secretary Lutnick reiterates the April 2nd launch of the External Revenue Service (ERS).

Highlights of Trump’s comments on Monday, March 24, 2025:

·       I may give a lot of countries breaks on tariffs

·       I will announce additional tariffs over the next few days on autos, lumber, and chips

·       Any country that purchases oil from Venezuela will have to pay a 25% tariff on trade with the U.S.

·       Tariffs for doing business with Venezuela will be on top of existing tariffs

·       I will probably announce automobile tariffs over the next few days

·       Not all tariffs will be included on April 2nd

·       Companies are all coming back to the US; so far received around $4 trillion in fresh investment commitments

·       Investment numbers are beyond expectations

·       The Biden CHIPS Act was a disaster

·       We will be announcing cars and pharma

·       Will be announcing tariffs on autos, aluminum, and pharmaceuticals very shortly

·       Tariffs will keep US taxes low

·       More countries will fill up the Abraham Accords (Middle East permanent peace plan)

·       Energy prices are coming down

·       I hope the Fed lowers interest rates

·       I would like to see the Fed lower interest rates

·       We will get a brand new air traffic system

·       We’re dealing with people in Greenland who want something to happen

·       Greenland visit is friendly, not provocation

·       Greenland is calling us, we're not calling them. It's important for national security

·       Trump on GDP forecast cut: We inherited a very bad situation

·       I was very concerned about the economy six months ago

·       Agreement on rare earths to be signed shortly with Ukraine

·       We're talking about territory now and talking about power plant ownership

·       25% Tariff On Anyone Who Buys Venezuelan Oil & Gas

·       Money is pouring in, we want to keep it that way

·       I suspect investment from tariffs and election results

·       Hyundai is to build a steel plant in Louisiana, it will create around 1400 jobs

·       Hyundai's investment makes it clear that tariffs work. Hyundai will not have to pay any tariffs

·       The Hyundai steel plant is part of a larger $21 bln investment in the US

·       Hyundai is increasing auto manufacturing in Georgia too

·       Hyundai plant will produce more than 2.7 million metric tons of steel a year

·       Hyundai CEO Chung: A $6B investment is to strengthen the US steel supply chain, with a $21b new investment over the next four years in the US

·       Hyundai CEO Chung: This week, we're opening an $8b plant in Georgia

·       Hyundai CEO Chung: Hyundai will purchase $3b of US LNG

The US Treasury Secretary Bessent said:

·       I expect interest rates to go down

·       Laid-off people can go into the private sector

·       Interest rates are going to keep declining as energy costs decline

The US CEA Chief Miran said:

·       Regarding tariffs, US consumers are flexible

·       3/4 of jobs past 2 years came from govt expenditures

·       We'll find out soon on US reciprocal tariffs

·       Wrong to think my November paper (Project 2025 by Republicans) is the source of policy moves

·       The President is 'the chef" when it comes to policymaking

·       A currency deal, down the road, could be an option to look at

·       If the dollar weakened to balance trade, then there would be less problems

On Monday, March 24, Fed’s Bostic said:

·       There is a lot of uncertainty

·       We don't know where the economy is going to go

·       We won't get back to 2% inflation until early 2027

·       Families and firms are telling the Fed they don't know where the economy is heading

·       I was at two rate cuts this year, and now only see one

·       I am expecting inflation to be very bumpy

·       The appropriate path for policy has to be pushed back

·       I am hearing more concern about the path of the economy, but data has not shown that yet

·       Business contacts think prices will go higher

·       I question whether consumer sentiment will be a leading indicator of weaker activity

·       Businesses think price pressures are moving higher, but are also bullish on sales

·       Labor markets are still tight

·       Businesses are expecting to pass tariff costs along

·       Wage pressures are not outsized according to businesses

·       I am hearing about labor shortages in some sectors that may be linked to tighter immigration

·       It is unclear if tariffs will be a one-time hit to prices

·       Historically tariffs have meant a one-time jump in prices- that may be questionable this time

·       I fear consumers are more sensitive to prices now

·       The Fed does not want to move in one direction and then have to undo it, it is better to be more patient

·       Not jumping to stagflation yet

·       It is paramount that the Fed returns inflation to 2%, if the economy does weaken, we will manage that when it happens.

·       Fed actions may have to be larger once the direction is clear

·       The current Fed funds rate seems well calibrated, we will have to see whether it needs changing

·       My preference is to stay at this level of QT for a while before we stop

·       When asked if the Fed would sell MBS: I would think about it

·       Slowing down to make sure the Fed does not go too far is appropriate

·       I would consider selling MBS but have not had any conversations about it

·       My projection of inflation this year is 'pretty much sideways'

On Monday, Trump twice signaled big trading partners would receive possible exemptions or reductions for reciprocal tariffs to be announced on 2nd April.

On Tuesday, March 25, Tariff King India signaled:

·       India wants relief from US reciprocal tariffs in return for tariff cuts

·       India is open to tariff cuts of as much as zero from a range of 5% to 30% on 55% of US imports

·       India estimates hit $66 bln worth of its exports to the US from US reciprocal tariffs

·       India is open to cutting tariffs on more than half of US imports worth $23 bln

Conclusions:

Trump may blink again and scale back or postpone reciprocal tariff implementations to 1st July from 2nd April for ‘progress’ on BTA (bilateral trade deal) with various countries including China, India, Canada, Mexico, and the EU. It’s the US importers and consumers, who have to bear the brunt of higher tariffs, not the exporters despite the rhetoric of US ERS (External Revenue Service) to collect Trump Tariffs from exporters. In such a situation, all targeted exporters may also stop shipping goods to the US and will eventually divert goods to other destinations. China has been preparing for such a moment for the last 20 years to reduce the US and Europe's dependency on trade amid never-ending geopolitical fragmentations.

Trump also realized that the Fed is not going to cut rates before June’25 and thus he may also postpone his reciprocal and country-specific higher tariffs till at least June’25. The dealmaker Trump is using tariffs and US consumption as leverage to make concessions in trade and also forcing various US/foreign companies to invest in the ‘Liberated US” under his ‘Golden Age’.

Tariff Man Trump often talks about China’s huge trade surplus of over $1 trillion globally and $300 billion with the US. This is because the US and other countries are using China’s manufacturing hub as a cheaper outsourcing to maintain the comparatively lower cost of living. China has efficient industrial and logistical infra on a huge scale. The US imported Chinese goods as a compulsion as it had no alternative either domestically or even externally. China is not forcing the US to buy its goods at gunpoint.

Trump has to compete with China by developing comparable industrial and logistical infra including high-speed railway networks across America. Trump can’t simply replace Chinese goods by imposing draconian tariffs and waging tech & cold war. But Trump’s logic of reciprocal tariffs on countries like India is a good idea, although it may not be practical as India does not need US cars, pharmaceuticals, etc. In any way, Trump may impose some restrictions like H1B visas or even special service tariffs on India’s IT service exports.

Bottom line:

Trump may be creating too many uncertainties and flip-flops on his tariffs agenda to Make America Great Again. Wall Street and also Main Street including the Fed are quite confused about Trump’s various types of tariffs Primary, Secondary, Targeted, Sectoral and Reciprocal. The market does not like uncertainty. Trump tariff tantrum may not only cause US stagflation but may also create a synchronized global economic slowdown and even an all-out recession just 5-6 years after the previous cycle of the COVID recession.

Market Wrap:

On Monday, March 24, 2025, Wall Street Futures surged after a volatile day of trading amid Trump’s Secondary and Targeted tariffs. Wall Street has some brief respite on hopes of a less hawkish Trump trade war. The S&P 500 climbed 1.8% to a two-week high, while the Nasdaq 100 gained 2.1%, and the Dow Jones rose 597 points. Wall Street was also boosted briefly by softlanding optimism after upbeat S&P Global PMI data for the US and projections of at least 1.5% real GDP growth in Q1CY25 (against negative GDP growth concern). But hawkish comments by Fed’s Bostic also dragged the risk trade sentiment.

On Monday, Wall Street was boosted by consumer discretionary, communication services, industrials, banks & financials, techs, real estate, materials, energy, healthcare, and consumer staples, while dragged by utilities slightly. Dow Jones (DJ-30) was boosted by Home Depot, Amazon, NVIDIA, American Express, JPM, Goldman Sachs, Visa, SalesForce, IBM, Walmart and 3M, while dragged by Verizon, Merck, Nike, P&G, Amgen, J&J and United Health. Overall, Tech stocks led the gains, led by Chipmakers Nvidia and AMD on Trump’s Chip tariffs; Tesla also soared on short covering/value buying in hopes of China's permission for its full automatic driverless car.

On early Tuesday, March 25, Wall Street Futures edged down on renewed concern about Trump trade war uncertainty. Gold Also slipped, while Oil got some boost from Trump’s Secondary tariffs on Venezuelan oil exports as it may affect global supply to some extent.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42300) now has to sustain over 42500 for a further rally towards 42700/42900-43200/43500 and 43700/44050 and 44250/44400-44500/44800 and 45000/45200-45300/45500 and even 45700/45800-45900/46000 in the coming days; otherwise sustaining below 42400, DJ-30 may again fall to 42000/41500-40900/39500 and 38700-36100 in the coming days.

Similarly, NQ-100 Future (19900) has to sustain over 20200-21050 for a further rally to 21300/21500-21700/21850 and 22050/22200-22350/22500 and 22700/23000-23300/23500 in the coming days; otherwise, sustaining below 21000, NQ-100 may again fall to 20900/20600-20400/20150 in the coming days.

Also, technically Gold (CMP: 3025) has to sustain over 3035/3065 and 3075-3100 for a further rally to 3125/3150-3200/3225; otherwise sustaining below 3065-3025, Gold may again fall to 2990 and 2965/2925-2900/2880 and 2850/2835-2810/2780-2780 and 2745/2725-2695/2665 and further 2635/2600-2585/2560 in the coming days.