The US tariff rate on all imports is now around 22%, a level last seen over a century ago in 1910. Just last year, the rate was 2.5%. “This is a game-changer, not only for the US economy but for the global economy. Many countries will likely end up in a recession. You can throw most forecasts out the door if this tariff rate stays on for an extended period of time,” says Olu Sonola, Fitch Ratings’ head of US economic research.
For some market commentators, this drastic move by the US, although well telegraphed, is akin to shooting itself in the foot. “You can argue that the risk of stagflation is increased. You are going to have a supply-side shock by tariffs on the US economy on prices, and then the uncertainties when it comes to businesses and consumers. Both of which could be problematic for growth,” says Tai Hui, chief market strategist, Asia Pacific at JP Morgan Asset Management (JPMAM).
“Of course, Trump said that partners could negotiate with the US to lower these rates, but the tension building into the announcement and the initial shock will be hard to digest for many trade partners and will more likely than not lead to retaliation,” says Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The Straits Times Index, already softened after hitting a record last Friday, March 28, gave up some of the gains in the course of this week and dipped further to end April 3 at 3,942.23 points. Other regional markets, with more to lose because of their export exposure to the US, suffered bigger drops.
See also: US emerges as biggest loser in markets from Trump’s tariffs
Regional currencies moved in reaction as well, affecting even the Singapore dollar (SGD), which has a reputation for being a safe-haven currency relative to the more volatile rupiahs and rupees of Asia. The overnight exchange rate of around 1.3429 SGD to the USD spiked to 1.3488 by 8am before easing back to 1.3429 by around 1pm. The Monetary Authority of Singapore (MAS) issued an uncharacteristic statement just after noon on April 3, saying that it is ready to curb excessive volatility in the Singapore dollar, and to “ensure that Singapore’s foreign exchange and money markets continue to function in an orderly manner”.
Even the Singapore dollar, typically stable compared to those of neighbouring countries, saw a reaction against the US dollar from the ripple effect of
Trump’s ‘Liberation Day’ tariffs. Chart: Bloomberg
See also: Singapore won’t retaliate against US tariffs, seeks engagement
Meanwhile, Singapore’s foreign exchange and money markets continue to function normally. “MAS is closely monitoring developments and assessing the implications for the Singapore economy,” says the country’s central bank, which did not directly refer to the tariffs.
While Singapore as a market is hit with the base 10% rate, many listed companies here have significant operations in other markets that will be impacted by much higher rates and their share prices have reacted accordingly.
China-based Yangzijiang Shipbuilding, which has been seeing some volatility in recent weeks because of proposed US measures to impose port fees on China-built vessels, dropped 0.9 cents or 3.83% to end the day at $2.26. As recent as Feb 20, the counter was changing hands at $3.30, as investors were cheering the strong order book chalked up by the company, especially in so-called cleaner fuel vessels.
The share prices of several manufacturers with significant operations across various states of Malaysia, which is hit with 24%, were slightly lower. They include Venture Corp and Aztech Global , which have significant sites in Johor; and UMS Integration, whose Penang site is its key facility.
Nanofilm Technologies International, which is exposed with its operations mainly in China, was down 3.17% to 61 cents on April 3. The company provides coating services for parts used in consumer electronics such as smartphones. Already weathering effects dating back from Trump’s first term, Nanofilm has been compelled to invest in alternative facilities in Vietnam, and to a smaller extent, Europe. In this current round on April 2, Vietnam is hit with a whopping 46%.
Hartmut Issel of UBS Global Wealth warns that market uncertainty is likely to remain elevated in the weeks ahead, as investors consider likely downgrades to consensus US economic and earnings growth forecasts, the risk of a tit-for-tat escalation in tariffs, and the potential scope for tariffs announced to be negotiated down.
“All of this is likely to mean an extended period of volatility for US equities,” he says.
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Nonetheless, Issel, the bank’s head of APAC equities and credit, believes the market will end the year higher and continue to see strong long-term potential in various broader investment themes such as artificial intelligence, longevity, and power and resources. “Investors can also consider utilising yield-generating strategies to benefit from current high levels of volatility,” he adds.
Issel is optimistic towards the later part of the year. “While uncertainty is currently high, we also believe that, at the margin, incremental news flow could become more supportive as we approach the second half of the year. Now that the tariffs have been announced, negotiations to soften them can begin. Tariff revenue could be used to offset the cost of extending tax cuts. And we would expect the Fed to respond to weakening growth with interest rate cuts.”
Some market commentators have previously turned positive on Europe and China — the former for renewed enthusiasm in defence and industrial spending, and the latter for its consumer-centric economic stimulus measures.
Given the recent year-to-date gains, Issel is keeping a “neutral” stance on both of these markets as he warns that a period of near-term de-risking is possible, particularly if retaliatory measures are announced. Specific sectors favoured by him include those likely to benefit from fiscal spending in Europe and defensive counters such as some of China’s state-owned enterprises.
With Trump’s shocking moves, the existing old world order — whose lynchpin was the alliance of Western countries — has become unhinged. This will drive the formation of tighter regional blocs. “If there is an America-first, why not have a Europe-first?” suggests JPMAM’s Tai.
“The US economy and Europe are going to be less coordinated, things seem to be detached or detaching. Defence is a clear candidate where Europe needs to beef up the investment, along with maybe commercial aerospace, scientific research, and financial sectors.”
From Tai’s perspective, there will be a couple of broader investment themes shaping up. If the world is going to be more self-reliant or less dependent on others, governments and businesses will actively reallocate resources to their domestic industries in a better bid to support businesses in these sectors. “That creates potential play, especially when you’ve got significant valuation divergence between the US and Europe, or between the US and other markets. I think that could be an interesting investment theme for the next few years,” he says.
Vasu Menon, managing director of investment strategy at OCBC, sees some positive light from the developments. He has described Trump as someone who takes some affirmation from how markets react in deciding what he should do. “Some comfort can be found from the fact that the White House is fully aware that an aggressive tariff agenda that hurts US growth badly could also hurt the Republican party’s chances in the mid-term elections. This may see Trump dialling back on some tariffs in time,” says Menon.
Furthermore, with US markets dropping, investors might be induced into increasing their positions, for there is plenty of dry powder available. “Comfort can also be found in the US$7 trillion [$9.4 trillion] mountain of US money market funds sitting idle on the sidelines, which could offer market support,” adds Menon.
