Market Perspectives: What do the first 100 days of Trump mean for the next 1,361?

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients).

Anthony Willis

Senior Economist

Key Takeaways

We have seen a positive outcome from trade talks between the US and China over the weekend, and while there was an expectation that we would see some progress, the reduction in tariffs has surprised to the upside.
For China and the US, the clock is now ticking for negotiations to reduce or remove reciprocal tariffs. Given the lack of detail in these agreements, there is scope for plenty more deals before the early July deadline, and a detailed trade deal would take significantly more time and detailed negotiation.
While there will continue to be uncertainty, it is clear that this is a very positive step. Financial markets are already rallying strongly this morning, and we anticipate a further recovery in risk appetite as market participants assess the potential for further trade deals.
It should be remembered, however, that trade deals normally lower barriers and costs; these frameworks are simply securing a “less bad” outcome. The 10% baseline tariff is still higher than anything we’ve seen since the 1930s and appears to be a more permanent feature.
So, while the trade war may well be on a de-escalating path, there will be some impact for some countries and companies

Transcript

Welcome to this week’s market perspectives. Once again, it is very hard to look beyond tariffs and trade negotiations for the dominant theme in financial markets. And what we have seen in recent days appears to be the beginning of the end of this first round of the trade war.

We have seen a very positive outcome from the trade talks between the US and China over the weekend. While there was an expectation that we would see some progress, the substantial reduction in tariffs between the two countries – albeit only for an initial 90 days – has surprised to the upside. The US tariff on Chinese imports will drop from 145% to 30%, while the Chinese tariff on US imports will fall from 125% to 10%.

With concerns that the punitive tariffs that have been in place since early last month were starting to impact on economic data, it had already been acknowledged by US Treasury Secretary, Scott Bessent, that the situation was unsustainable. However, the levels of pragmatism shown, and the statement this morning that “neither side wants a decoupling”, highlights how intertwined the two global economic superpowers remain.

Trade deals normally lower barriers and costs; these frameworks are simply securing a “less bad” outcome. While the punitive tariffs are coming down, the 10% baseline tariff appears to be a more permanent feature. President Trump has said overall levies on countries with large trade surpluses with the US could remain well over 10%: “some will be much higher … the template of 10 [per cent] is probably the lowest”.

Ultimately these are not trade deals as such, but a framework to cut or limit the scope of tariffs imposed by the US last month. In the case of China, there is a time limit to this framework and, of course, the clock is still ticking for negotiations to reduce or remove reciprocal tariffs. But given the lack of detail in these agreements, there is scope for plenty more deals before the early July deadline.

A detailed trade deal would take significantly more time and detailed negotiation. It would also need the approval of Congress. But we are seeing a template for other countries to negotiate.

Thankfully, given the extremely high levels of tariffs between the US and China have been in place only for a limited time, the economic damage should only be relatively superficial. The front-running of trade before the tariffs kicked in, and the drop off in shipments from China to the US in the past few weeks, still has the scope to cause plenty of confusion in the economic data before it settles down.

While there will inevitably continue to be uncertainty, it is clear that this is a very positive step and both sides recognise that a trade war will benefit neither nation. Financial markets are already rallying strongly this morning, and we anticipate a further recovery in risk appetite as market participants assess the potential for further trade deals over the coming weeks.

The news flow this morning and last week, including the UK ”deal”, points to tariffs remaining in place. However, they should now be at a level that will not only enable President Trump to argue he has taken action to address the US deficit and encourage the onshoring of manufacturing, but also that does not significantly impact on the economic trajectory of any country willing to engage with the US and come up with a framework to reduce tariffs.

We should be mindful that with the baseline 10% and other tariffs set to remain in place, the overall US tariff regime is still set to be higher than anything we have seen since the 1930s. So, while the trade war may well be on a de-escalating path, there will be some impact for some countries and companies.

12 May 2025

2025年 May 12日

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