Wall Street, UST stumbled as Trump plans reciprocal tariffs

·       Gold also slid as USD, US bond yield surged on Trump’s reciprocal tariffs plan; ‘Tariff King’ India may be a prime target ahead of Modi’s WH visit

·       But Trump may be also using such tariff threats as a negotiation tool for getting trade and other concessions

On Friday, Wall Street Futures, UST, Gold, and Silver stumbled, while USD, and US bond yields surged on the renewed concern of an all-out Trump trade war 2.0 as Trump may now introduce reciprocal tariffs on trading countries/partners. On Friday, Trump signaled a potential escalation in trade tensions with India by threatening to impose reciprocal tariffs. He criticized India's high tariffs on American goods, highlighting instances where India imposes tariffs as high as 100% on certain U.S. products. Trump emphasized that under his administration, the U.S. would adopt a policy of matching the tariffs imposed by other countries, stating, "If they tax us, we tax them the same amount."

On late Friday, there was a report Trump told Republican lawmakers that he plans to announce reciprocal tariffs as early as Friday itself. Reciprocal tariffs on American imports are equal to the rates that trading partners impose on American exports. This stance reflects Trump's broader "America First" trade policy, aiming to address what he perceives as unfair trade practices by countries like India, Brazil, and China. He has previously criticized India's trade practices, including the removal of India's preferential trade status under the Generalized System of Preferences (GSP) program in 2019, which led to retaliatory tariffs by India on 28 U.S. products.

The potential for reciprocal tariffs could strain the growing economic relationship between the U.S. and India. Bilateral trade between the two nations exceeded $120 billion in FY24, with the U.S. being India's largest export destination. Analysts caution that a tariff war could impact ongoing economic and geopolitical cooperation, especially as India is a key strategic partner for the U.S. in counterbalancing China in the Indo-Pacific region.

Indian government departments, including the finance & commerce ministry, have begun "brainstorming" sessions to assess Trump's potential policies and prepare for the challenges expected after he assumes office on January 20. India is already under pressure from Trump’s bellicose comments and reducing its exorbitant tariffs on various US ‘sin’ products including Harley Davidson Motor Bikes before the Indian PM meets Trump in mid-February.

But as a policy, ‘Tariff King’ India has already rationalized its sky-high tariffs for the last two years or from the Trump 1.0 era keeping the interest of its own MSME sectors. India will rationalize/reduce tariffs not as a knee-jerk Trump reaction but will do it gradually over a period, ensuring fair competition and productivity of domestic manufacturers and also its fiscal implications. The Indian government has also to rationalize various policies on land, labor, and energy costs to lower input costs and be globally competitive.

India is planning to review import tariffs on over 30 items, including luxury cars and solar cells, after US pressure of Modi's visit to the US.  Easing entry for the likes of Tesla into India may hurt the prospects for the likes of M&M. Crude oil, nuclear reactors, and pearls are some of the other major imports from the US by India. At a White House press conference later on Friday Trump suggested that the reciprocal tariffs could come instead of the 10-20% universal import duty plan at the center of his economic message during the campaign.

The threat of reciprocal tariffs may also weigh on IT stocks like TCS, Infosys, and Wipro. More than half (56%) of India's software exports go to the US and Canada. Trump has recently taken action and made announcements regarding tariffs and trade. These actions include threatening to impose tariffs on imports from Canada, Mexico, and China, as well as discussing reciprocal tariffs with other countries.

Key developments:

Tariffs Imposed: In early February 2025, President Trump imposed a 25% tariff on imports from Canada and Mexico and a 10% tariff on goods from China. These tariffs on Chinese imports serve as a punishment for Beijing’s failure to address the smuggling of fentanyl precursor chemicals. The tariffs for Canada and Mexico City were delayed for 30 days after both countries promised greater cooperation in combatting drug and human smuggling.

Reciprocal Tariffs: Trump announced plans to introduce reciprocal tariffs on multiple countries, to ensure fairness in global trade by aligning tariff rates on American imports with those imposed on U.S. exports abroad.

De Minimis Imports: Trump suspended planned tariffs on low-cost goods mailed directly to consumers from China as his administration works to figure out how to implement the changes. The De Minimis suspension for packages from China has been delayed until the commerce department has put in place adequate procedures and systems to expediently process them. Trump delays cancellation of De Minimis trade exemption targeting China imports.

Likely Economic Impact: The Tax Foundation estimates that tariffs on Mexico, Canada, and China could reduce economic output by 0.4% and increase taxes by $1.1 trillion between 2025 and 2034. The imposed Trump-Biden tariffs are estimated to reduce long-run GDP by 0.2% and employment by 142,000 full-time equivalent jobs.

Retaliation: There is anticipation that countries will strike back with their trade restrictions. China has already responded with 15% tariffs on U.S. coal, gas, and other goods, as well as restrictions on some minerals exports and the launch of an antitrust and other regulatory investigation into Google, Intel, Apple, and others.

Sectors Affected: Certain sectors of the U.S. economy, including automotive, energy, and food, will be hit particularly hard due to a potential Trump trade war 2.0. As per reports, the US chip curbs hit China harder than expected as TSMC treads carefully.

The EU will offer to cut tariffs on US car imports as part of a deal to avoid an all-out trade war with Trump. As per the WTO data, the U.S. trade-weighted average tariff rate is about 2.2%, compared to 3% for China, 12% for India, 6.7% for Brazil, 5.1% for Vietnam and 2.7% for European Union countries.

Trump had previously threatened to impose a flat 10-20% universal tariff, and even 60-100% on China and other BRICS countries for ‘threatening’ USD, but recently had tasked his administration with studying that possibility as part of a broader trade review due by April. 1. On Friday, Trump said the tariffs would apply to every country, added that the announcement would likely come ‘Monday or Tuesday’ (next week). The U.S. in many cases has lower tariffs than other countries for the same product, although Trump did not specify whether there would be exclusions to the new round of duties. Trump often cites higher tariffs imposed by foreign governments on automobiles, where the U.S. tariff is only 2.5%.

During his election campaign, Trump said he would work with Congress to pass the Reciprocal Trade Act that would give him the authority to raise the tariff on a particular foreign good to the level imposed by that country: “Under the Trump Reciprocal Trade Act, other countries will have two choices — they’ll get rid of their tariffs on us, or they will pay us hundreds of billions of dollars, and the United States will make an absolute FORTUNE-- If India, China, or any other country hits us with a 100 or 200 percent tariff on American-made goods, we will hit them with the same exact tariff. In other words, 100 percent is 100 percent. If they charge us we charge them — an eye for an eye, a tariff for a tariff, same exact amount”.

Currently, exporters in nearly every country around the world face the same tariffs on their exports to the US, although the individual U.S. tariff rates vary depending on the product. Some tariff rates, like for cars, are low. Other tariff rates, like for clothing and shoes, are generally higher. The US President made this declaration during a meeting with Japan’s Prime Minister Shigeru Ishiba, Trump restated concerns related to trade imbalances, especially in the automotive sector. He underlined the differences as the European Union’s 10% tariff on auto imports in comparison to the US’s 2.5% rate. Moreover, he has also observed that countries like Brazil, India, and Vietnam enforce higher average tariffs on American goods, which he thinks has placed the US at an economic downside.

Trump told Republican lawmakers of his plans during budget discussions at the White House on Thursday. Trump and top aides have said they plan to use higher tariffs on imports to help pay for extending Trump's 2017 tax cuts, which independent budget analysts say could add trillions of dollars to the U.S. debt. Increased tariffs could offset some of that cost, though they have only accounted for about 2% of annual revenues in recent years. Trump announced tariffs of 25% on Canada and Mexico last Saturday but delayed them after a negative reaction from Wall Street. The two largest U.S. trading partners agreed to increase enforcement efforts at the border, a top Trump campaign promise.

On late Friday, Trump said while addressing a joint presser with his Japanese counterpart:

·       I wouldn't need US troops in Gaza

·       I will discuss the Nippon-US Steel deal with Ishiba

·       I will announce reciprocal tariffs next week on many countries

·       Tariffs on Japan are an option

·       Tariffs are an option to address deficit

·       I will make an announcement next week on reciprocal trade

·       I haven't changed my mind on US Steel

·       We do want to work on the deficit; get it down to even

·       We want to end the trade deficit with Japan

·       I aim to bring down the deficit

·       Auto tariffs are always on the table

·       I will be meeting with Xi probably

·       I will be talking to Putin

·       The US looking for the security of rare earths

·       I will probably talk to Zelensky next week; I want to discuss the security of their assets, like rare earths

·       DeepSeek is a good development

·       We do want to work on the deficit with Japan. Want to get it down to even Zero.

·       Japan has committed to double defense spending by 2027 compared to my first-term

·       The US will extend the full strength of American deterrence capabilities in defense of Japan.

·       This week we have approved nearly $1 billion in foreign military sales for Japan.

·       Trump is considering allowing Japan's Nippon Steel to complete its $14.1 billion acquisition of US Steel,

·       We have a lot of people investing in the US.

·       Teams discussed how Japan and the US can do more by cooperating in cutting-edge artificial intelligence.

·       Japan will soon begin importing new shipments of American liquefied natural gas (LNG)

·       We are going to work out the trade deficit with Japan

·       We want trade with all countries based on fairness

·       We are going to work out the trade deficit with Japan, we can do it with just oil and gas

·       Nippon Steel looking at investment in US Steel

·       Japan to double defense spending by 2027; the US committed to the defense of Japan.

·       We will have reciprocal tariffs.

·       We will meet on reciprocal tariffs with Japan on Monday or Tuesday, and have an announcement.

·       Nippon Steel doing it as an investment, not a purchase

·       I didn't discuss tariffs too much with Ishiba

·       Exciting talks with Japan's PM Ishiba about pipeline in Alaska

·       Japan is also interested in importing US natural gas, ethanol, and ammonia

·       I have directed Musk to review Pentagon spending

·       We will have good relations with North Korea

·       Trump on DOGE: Social security will not be touched, it will only be strengthened

·       Trump and Ishiba oppose Chinese militarization in the South China Sea and call for a peaceful resolution of the Taiwan Strait issues.

·       Higher tariffs to pay for extending 2017 tax cuts

·       Republicans to unveil tax and spending plan this weekend

·       Trump often complains about 10% EU car tariff vs 2.5% US duty-- Europe won't take our cars but ships millions west across the Atlantic every year

·       I'll be announcing that, next week, reciprocal trade so that we're treated evenly with other countries--We don't want any more, any less

·       I think that’s the only fair way to do it that way nobody’s hurt,” the president continued

·       They charge us, we charge them. It’s the same thing, and I seem to be going in that line as opposed to a flat fee tariff.

Conclusions:

Overall, Trump trade war policies may add around 0.7% higher inflation for the US and $1200 additional cost of living for US households if implemented at face value as the US has no domestic manufacturing infra to match with a present lower cost of imported goods. Like in Trump 1.0, this time also Trump will collect indirect tax (import duties/tariffs) from US consumers/importers on one hand and provide some income tax cut on the other hand.

Bottom line:

Trump's policy uncertainty may be a big headwind not only for Wall Street but also for Real Street.

Market impact:

On early Friday, Wall Street Futures surged on mixed US NFP/BLS job data, but slipped on hotter inflation expectations (UM data) and stumbled on Trump’s reciprocal tariffs plan, which may cause more imported inflation.

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

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 44650) now has to sustain over 45300-45500 any further rally; otherwise sustaining below 45200, DJ-30 may again fall to 44500/44100-43700/43300 and 42800/41900 and further 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (21900) has to sustain over 22200-22300 for a further rally to 22500/22700-23000/23300 in the coming days; otherwise, sustaining below 22100, NQ-100 may again fall to 21700/21300-21100/20700 and further 20500/20300-20100/19250 in the coming days.

Also, technically Gold (CMP: 2798) has to sustain over 2850 for a further rally to 2875/2895-2905/2930 and 2950/2975-3000/3025; otherwise sustaining below 2840-2825 may again fall to 2770/2755-2725/2690 and further 2675/2655-2610/2560 in the coming days.