TLDR:
- President Trump’s “Liberation Day” on April 2 will introduce new reciprocal tariffs
- Markets are experiencing unusual volatility with Treasury yields showing patterns not seen since 2008
- Political analyst Mark Rosenberg suggests the US is “looking more and more like an emerging market”
- Tesla has lost $500 billion in market cap since Trump’s inauguration
- Even in a best-case scenario, Trump’s trade plan requires numerous unlikely conditions to succeed
Market Uncertainty Grows
The U.S. stock market has fallen 9% from its record high. Gold prices reached a new peak last Friday. Treasury yields are showing more volatility than at any point since the 2008 financial crisis. These are just some of the effects of the looming “Liberation Day” – President Donald Trump’s term for his new reciprocal tariffs set to roll out on April 2, 2025.
The market turmoil reflects growing investor concern about the uncertain economic path ahead. Federal Reserve Bank of Richmond President Tom Barkin summed up the situation last week, saying, “How does one drive in fog? Carefully and slowly.”
The fog he refers to comes from widespread policy uncertainty. April 2 was chosen as “tariff day” because April 1 is the deadline for trade reports that will determine the legal basis for the tariffs. The president also wanted to avoid April Fools’ Day.
Business leaders are scrambling to prepare. U.S. companies need to complete new regulatory requirements to get their exports certified under the USMCA trade deal. This certification will help them avoid the incoming 25% tariffs.
The market impact has been felt across all asset classes. The S&P 500 has dropped 9% from its record high. Treasury yields have fallen from 4.8% in January to around 4.2%, mainly due to declining growth expectations.
Yet these yields remain higher than at any point since the 2008 financial crisis. Gregory Peters, co-chief Investment officer at PGIM Fixed Income, notes an unusual pattern: “If you look at moves in the 10-year Treasury, now we have more 10-basis-point moves than we’ve seen since right around the global financial crisis.”
Gold has been a beneficiary of the uncertainty. The precious metal reached a record high price last Friday. Many investors see it as a safe haven during times of political and economic turbulence.
Emerging Market Comparisons
Political scientist Mark Rosenberg of GeoQuant sees concerning parallels to less stable economies.
“The U.S. is basically looking more and more like an emerging market,” he says. His firm builds models of political risk for investors around the world.
Rosenberg points to several factors behind this comparison.
“You have higher policy uncertainty, you have greater questions about rule of law, you have concerns about the ability of the state to tackle its fiscal problems, a dysfunctional political environment,” he explains. “All the stuff that you would get if you were talking about South Africa or Brazil.”
The administration’s economic plans are further complicated by the battle over Elon Musk. The Tesla CEO is running DOGE, an initiative to slash government spending. This has sparked nationwide protests against potential cuts to federal programs.
Tesla’s market value has plummeted since January 20. The company has lost $500 billion in market capitalization since Trump’s inauguration day. Meanwhile, Musk remains the administration’s point person for reducing government spending.
DOGE represents the administration’s primary hope for deficit reduction. This comes as Congress plans to extend expiring tax cuts, which would increase the deficit by $2.8 trillion. Musk’s role has tied his fate to the nation’s interest payments.
The Challenging Road Ahead
For “Liberation Day” to succeed, an improbable series of events must occur. Trading partners would need to accept tariffs without retaliation. The rollout would need to happen smoothly, without chaos at U.S. ports.
These tariffs would also need to boost growth rather than disrupt business and consumers. This outcome would be a historical exception to the typical economic impact of trade wars. Businesses would need to adapt quickly to changing trade relationships.
American consumers would need to accept higher prices without complaint. The White House argues that tariff-related price increases will be temporary. But consumers are already frustrated with inflation and may not be patient.
The Federal Reserve faces a difficult position. If it cuts rates to stimulate flagging growth, it risks driving up inflation. Such cuts would represent an emergency measure rather than a planned easing of monetary policy.
Even if Trump’s approach leads to new trade deals, market anxiety may persist. Wall Street analysts would likely view any improvement as temporary. The uncertainty of the past months has already affected business operations and expectations.
The completion of the April 2 tariff rollout does not mean the end of trade uncertainty. The potential for future disruptions will continue to influence market decisions. Investors remain cautious about the long-term economic outlook.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
