Tariff Time: Markets Quickly Repricing Growth, Will Assess Opportunities
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- Effective US tariffs of 20%-25% on Mexico, Canada and China have begun on President Trump’s orders. Along with other factors, the tax increases for US importers have catalyzed a US equity selloff of about 6.5% since a record high was reached on February 19.
- How long the tariffs last on individual countries is an open question. Having the tariffs in place shows the US administration wasn’t bluffing in trade negotiations. The tariffs would apply to $1.36 trillion of US imports at last year’s level. If trade and consumption patterns were static, they would raise about $300 billion.
- Since the tariffs on North America and China are far above “reciprocal” levels, we think the largest effective tariff increases have already been announced. Additional tariffs on specific countries and industries might amount to an additional $50 billion or (for a stretch) $100 billion. Meanwhile, a measure of trade policy uncertainty has reached a record high.
- The speed of the market correction in the past few trading sessions is indicative of a rapid repricing of growth expectations. S&P 500 option implied volatility (VIX) has jumped 64% in the past two weeks and correlation measures have spiked across industry groups. At 25, the VIX and other measures are not at extreme levels indicative of a market bottom.
See our weekly CIO Strategy Bulletin for more details