Wall Street was in liquidation mode after China announced its own set of retaliatory tariffs. According to state-run Xinhua, Beijing announced it would slap 34% tariffs on all US imports starting April 10.
The overall weighted-average tariff is 29% – the highest in over 100-years – and greater than the Smoot-Hawley Tariff Act in 1930.For context, ‘The Great Depression’ began with the 1929 stock market crash but Smoot-Hawley exacerbated the downturn with similar tariffs. The S&P 500 fell as much as 86% between September 1929 and July 1932.The S&P 500 sold off 4.84% on Thursday and 5.97% on Friday, marking the worst single-day sessions since the pandemic.
In early March, the Trump administration proposed tariffs amounting to at least US$770 billion, according to UBS.In the UBS chart above, analysts estimated around US$100 billion in reciprocal and retaliatory tariffs. However, the tariffs announced on Wednesday reached approximately US$600 billion — nearly double the amount pledged during his campaign and almost 15 times the value of tariffs imposed during his first term.
The likelihood of a US recession has soared in the past three days.
As of Saturday, 9:50 pm AEDT, the odds are 57%.This compares to ~40% around the time of Trump’s ‘Liberation Day’ announcement and 23% a month ago.
Following China's announcement of a 34% tariff, JPMorgan raised its US recession probability to 60%. The excerpt below is sourced from Bloomberg:
JPMorgan Chase & Co. Chief Economist Bruce Kasman, for one, said he now sees a 60% chance that US tariffs will push the global economy into a recession this year. His note bore the title: “There will be blood.”
It’s Not Just Stocks
If you think equity markets are experiencing a sharp sell-off,just wait until you see the volatility in commodities and currency markets.
Here’s how key commodities closed on Friday:
Copperdown 8.76% to US$4.41/lb
Silver-7.1% to US$29.5/lb
Brent crudedown 6.4% to US$62.2/bbl
Golddown 2.47% to US$3,037/oz
You know the market is in a heightened state of panic when gold is aggressively selling off.
But the most shocking move was the Australian Dollar– down 4.6% to 60.3 US cents. The last time the Aussie fell this hard was during the Global Financial Crisis.
What’s more astonishing is that, outside of the COVID period, the Aussie has now fallen below its GFC low, reaching levels not seen since 2003.
This is going to have massive (inflationary) implications for imports.
Australian Exports
Australia’s two-way trade by region 2018-19
Australia was only hit with the baseline 10% tariff.On its own, this tariff isn’t a major concern.
In 2023-24, Australia’s top five exporting countries(in percentage terms) were:
China:32.26%
Japan:12.21%
South Korea:6.41%
USA:5.69%
India:5.19%
The challenge arises because some of Australia’s largest trading partners are now facing steep tariffs: China has been hit with an additional 34% on top of a prior 20%, Japan faces 24%, and South Korea is dealing with 25%. These hefty tariffs on our key markets threaten to disrupt the economic growth of these key economies and potentially lower their demand for Australian exports.
Markets During a Recession
The table below illustrates the S&P/ASX 200’s performance following major economic events. The forward-looking data offers some reassurance but also notes negative twelve-month returns in most instances.
Additionally, I’d like to note that:
Markets are in a state of extremely volatility, and short-term counter rallies will always take place (e.g. the S&P/ASX 200 fell as much as 38% between 20-Feb-20 and 23-Mar-20. But during this period, the market rallied 3.1% on 10-Mar and 5.8% on 17-Mar)
The above data does not highlight the max drawdown. For Covid, it was ~38%, for the GFC it was ~55% and for the 1987-88 crash it was ~48%
Lastly, there are so many moving pieces right now. Could the Fed start cutting and printing cash? Will inflation actually spike? Could countries work towards a truce? Only time will tell. Good luck out there
