Tariffs – State of Play
Several new tariffs and threats were made over the past week. Last Saturday, Trump announced a 30% tariff on both the EU and Mexico through two separate letters. A 50% tariff is set to be imposed on Brazilian exports, while Canada faces a 35% tariff on non-USMCA goods. Tariffs of 25% have been levied on Kazakhstan and Malaysia, with 30% on South Africa. Copper is facing a potential 50% tariff, while pharmaceuticals are targeted with a steep 200% duty. ASEAN countries have been hit with a range of 25% to 36%. Additionally, Trump announced a 25% tariff on all goods from Japan and South Korea.
Market Reaction – Muted Moves, Mounting Risks
Markets are not fully reflecting the scale of these tariff threats, particularly given how aggressive some of the proposed rates are. European markets opened a bit soft on Monday, with no major moves. The copper market shows some divergence, with the London–US prices’ spread implying roughly a 50% probability of the copper tariff being implemented. In Brazil, USDBRL and local rates initially sold off on the announcement but quickly reversed. More broadly, rates markets are not pricing in any growth disruption these measures could cause. Equity markets remain resilient and appear to be underestimating the potential inflation spike and demand hit that could follow. We see risks skewed to the downside.
Algebris Investments’ Global Credit Team
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