US markets sink as tariff shock hits growth and inflation outlook

Following President Trump's tariff announcement last night, US stock markets are selling off more sharply than their foreign counterparts (see below), suggesting investors anticipate a significant impact on American GDP, inflation, and corporate earnings.

Indeed, US smallcaps - which tend to be more domestically focused - are indicated to open down over -4% while US 10-year treasuries fall -15bps to 4.04% vs gilts at 4.64%.

That said, personally I suspect most of the bigger tariff differentials will be lifted over the next few months, as countries negotiate bilateral deals with the White House.

Indeed just yesterday, to improve its trade balance with the US, Vietnam cut import tariffs on American liquefied natural gas to 2% from 5%, on automobiles to 32% from 45%-64%, and on ethanol to 5% from 10%.

Plus, just wait until Trump starts publicly waving the chequered flag to declare his policies are working. He'll love it.

Lastly, the tariffs charged to the US stated in the graphic below are not actually tariffs. They are the trade deficit divided by imports from that country. For example:

Trade deficit with China ($295.4 billion) / imports from China ($438.9 billion) = 67%
Europe: $235.6 billion / $605.8 billion = 39%
Japan: $68.1 billion / $148.1 billion = 46%

In fact, the reciprocal tariffs appear to have little to do with actual tariffs. They've instead been set to equalise trade deficits.