Trump’s Tariffs: Two Months On
An in-depth analysis of the economic and market impacts after the introduction of President Trump’s reciprocal tariffs, focusing on trade balances, market volatility, and the USD exchange rate.
Since President Trump rolled out his reciprocal tariffs in early April 2025, the global trade landscape has faced heightened volatility. These tariffs, intended to address America’s trade imbalance, have triggered significant debates regarding their real-world effectiveness and impact on markets. This piece from EODHD APIs unpacks the insights, weaving together key data points and visuals from the “Trump Tariffs Final” presentation to offer a thorough examination of how these measures have reshaped trade relationships and financial markets.
Reciprocal Tariffs Formula
President Trump’s tariff plan hinges on a straightforward reciprocal formula designed to address the U.S. trade deficit:
Countries with extremely high or low ratios, however, were hit with a blanket 10% tariff instead. Although the objective was to balance trade, this approach doesn’t fully capture the intricacies of global supply chains.
Present Landscape of U.S. Tariffs
The White House’s strategy focuses on reducing the trade deficit by levying tariffs based on the trade balance ratio.
The trade standoff between the U.S. and China remains intense, with China imposing retaliatory tariffs of 125%. Meanwhile, the U.S. has selectively removed tariffs on some electronics to limit consumer impacts.
Historic Trends in U.S. Trade
Analyzing trade history reveals that, while U.S. imports expanded over previous decades, they plateaued in 2022.
Interestingly, China’s trade deficit started to decline in 2018, even before the latest tariffs took effect. In contrast, Vietnam’s trade deficit has widened, raising suspicions that Chinese manufacturers might be relocating production there to sidestep tariffs — a classic example of trade policy having unintended side effects.
Sector-Specific Trade Trends
Sectoral analysis highlights notable differences in trade patterns. For example, the trade balance for computers and electronics has weakened since 2019, while oil, gas, and chemicals experienced divergent shifts.
In transatlantic trade, the U.S. emerged as a net energy exporter to the EU following sanctions on Russian energy and the rise of competitive American LNG exports. At the same time, decreased EU trade with Eastern Europe fueled a surge in EU chemical production, intensifying the U.S. trade deficit in chemicals.
Impact on Electronics, Transport, Chemicals, and Machinery
U.S. imports and exports of electronics, transport equipment, chemicals, and machinery are among the hardest hit by these tariffs.
These industries are capital-intensive with long profitability cycles, making them especially susceptible to trade policy disruptions.
American companies that rely on imported components — especially in chemicals, electronics, and transport — now grapple with higher input costs and retaliatory tariffs.
The double blow of costlier components and reduced export competitiveness threatens margins and overall supply chain stability.
Financial Market Consequences
Following Trump’s Liberation Day tariff announcement, the stock market posted declines across all sectors, averaging a 12% drop.
The energy sector was hit particularly hard (-16%), driven by fears of a global economic slowdown. Supply chain-heavy firms like Apple, AMD, and Caterpillar also saw margin pressures, reflecting the widespread concern over higher input costs.
S&P 500 Resilience Amid Tariffs
Despite initial turbulence, the S&P 500 has stayed near record highs, a testament to market expectations that Trump might eventually ease tariffs through negotiation.
Market Volatility from Policy Uncertainty
The unpredictable nature of Trump’s tariff policies has spurred significant market volatility, as evidenced by sharp movements in the VIX index.
Uncertainty about potential trade retaliation and future tariff adjustments has left investors wary, contributing to rapid market swings.
The Political Timeline and Its Impact on Markets
A review of political milestones from 2024 to 2025 illustrates how market volatility closely mirrored political events:
- Early April: Trump’s initial tariff announcement caused a pronounced market downturn.
- The VIX surged, reflecting increased investor anxiety.
- Later, Trump’s decision to freeze some tariffs triggered a sharp rebound in stock prices.
This sequence underscores how market sentiment has become highly sensitive to trade policy developments, overshadowing traditional political events like nominations and elections.
S&P 500 Reactions to Tariff Announcements
A closer look at the S&P 500 shows dramatic one-day changes during key announcements:
- December 17: Certification of Trump’s electoral victory caused a 2.9% decline.
- April 2: Trump’s tariff declaration resulted in a 4.8% one-day drop, followed by an even larger slide the next day.
- April 9: Trump’s freeze on tariffs sparked an unprecedented 9.5% single-day rally.
Such extreme movements highlight how tariffs have become a major driver of stock market performance, often overshadowing broader economic or political trends.
VIX Index Reaction to Tariffs
The VIX index — a barometer of market volatility — followed a similar pattern:
- April 3–4: The VIX soared by 39% and 50% respectively, reflecting deep market concern.
- April 9: Trump’s tariff freeze led to a record-setting 35% drop in the VIX, signaling relief among investors.
These dramatic swings illustrate how trade policy uncertainty can overshadow even major financial events, with investors rapidly shifting between panic and optimism.
Historical S&P 500 Responses to Tariffs
Traditionally, the S&P 500 has absorbed the impact of tariffs within weeks, typically resuming its prior trend.
However, the current environment differs fundamentally: recession worries, tighter monetary policy, and the unprecedented scope of the 2025 tariffs could prolong market volatility well beyond past experiences.
Historical VIX Trends After Tariffs
Looking back, market volatility has historically subsided once tariffs became established.
But with today’s heightened economic uncertainty and trade disruptions, volatility may persist longer than in previous tariff cycles.
Tariffs’ Influence on USD Exchange Rates
In past trade conflicts, the U.S. dollar often strengthened due to its status as a safe-haven currency. However, the 2025 tariffs appear to have broken that trend.
Since the tariff announcement, the dollar has weakened by 4% against both the euro and the yen — a sign that markets are reassessing America’s position as a trade leader.
USD-EUR Exchange Rate Movement
The USD-EUR exchange rate has declined by 6% over three weeks following the tariffs — opposite to historical expectations.
This unexpected movement reflects market doubts about the long-term strength of the U.S. economy amid trade tensions.
Conclusion
Two months into the Trump administration’s reciprocal tariffs, the global economy is grappling with their widespread impact. While trade deficits have narrowed in some sectors, this is largely due to declining imports rather than increased exports. Legal disputes have further complicated the policy landscape, leaving markets in a state of flux. Even as some industries show signs of resilience, sectors like energy and technology remain under pressure. With the trade war continuing to evolve, investors, businesses, and policymakers must stay nimble and prepare for a market environment defined by persistent uncertainty and policy-driven volatility.
Please note that this article is for informational purposes only and should not be taken as financial advice. We do not bear responsibility for any trading decisions made based on the content of this article. Readers are advised to conduct their own research or consult with a qualified financial professional before making any investment decisions.
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