Quick hit – Tougher than expected reciprocal tariffs revealed 

Executive summary

• President Trump has revealed sweeping tariff increases on nearly all trading partners – raising the baseline tariff rate to 10% globally from 2.5% currently. All will be implemented within a week.
• It is important to note Canada and Mexico aren’t subject to this proclamation, though will be subject to the previously announced 25% auto tariffs.
• Our read is that the average tariff rate will be close to 20% just for these tariffs, not including the sector tariffs for steel & aluminum and automotive. Moreover, given China’s move to 54%, the trade-weighted rate is likely higher – perhaps near 30%.
• Given the size and severity, we view these tariffs as an opening salvo by the White House. That implies that the ultimate tariff rate should be lower, but also that businesses will likely remain in “wait & see” mode, which isn’t pro-growth for the economy. That raises the risk of a recession as the sour sentiment could bleed into the hard data, which has largely held up to this point.
• In the end, these tariffs are considerably higher than market expectations. The initial reaction in afterhours trading was for stocks to trade down, while U.S. Treasury yields fell and the price of gold rose.
• This announcement reinforces our team's House View shift from late February, where we downgraded our equity view in favor of slightly increasing cash to adopt a more neutral posture, while maintaining a focus on high quality fixed income as we navigate this transition period.

What happened

The White House announced an increase in the baseline tariff rate to 10% globally from 2.5% currently. However, a poster shown during the announcement listed rates by country, including the European Union which will be tariffed at 20%, Vietnam at 46%, Cambodia at 49%, Taiwan at 32%, Japan at 24%, South Africa at 30%, India at 26%, South Korea at 25%, etc.

The White House listed multiple starting dates, including that the 10% baseline will start on April 5 while the higher tariffs will go into effect on April 9. Suffice to say that all will be implemented within a week.

Although presented as reciprocal, these tariffs consider other factors, including non-trade barriers and currency manipulation, which appear to raise the “all-in” figure listed on the White House’s poster well above simply existing tariffs charged to U.S. goods by these nations. Broadly, it appears these new tariffs are half of the White House’s calculated tariff rate for each country.

Importantly, the United States-Mexico-Canada Agreement (USMCA) remains in place, meaning that Canada and Mexico aren’t subject this proclamation. However, they will be subject to the previously announced tariffs, such as 25% on autos as well as steel & aluminum, and 10% on Canadian energy resources.

Our take

Again, we aren’t surprised by the notion of President Trump increasing tariffs to rebalance trade, a view he’s repeatedly espoused throughout his first term as well as during the 2024 campaign. It is something we wrote about in our 2025 outlook.

Nevertheless, these tariffs are considerably larger than we anticipated. Accordingly, this appears to be a shock & awe version, perhaps to provoke swift compliance by global trading partners.

We’re still digesting the multiple facets of this radical shift in trade approach. Alas, it will likely be met with retaliatory actions, including tariff increases, by many trading partners. Conversely, some trading partners will choose to make a deal on tariffs.

More importantly, while it offers many details, it doesn’t provide the clarity that businesses need to move forward. Given the shifting nature of such a fluid situation, it likely means business leaders and decisionmakers will remain in “wait & see” mode, which isn’t pro-growth. Thus, it raises the risk of a recession in the near term. 

Bottom line

The President is doubling down on his plan to take aggressive action to rebalance trade. The specter of uncertainty remains, will continue to feed volatility in markets in the near term, and raises recession risks.

This announcement reinforces our team's House View shift from late February, where we downgraded our equity view in favor of slightly increasing cash to adopt a more neutral posture, while maintaining a focus on high quality fixed income as we navigate this transition period.