Trump Suspends Reciprocal Tariffs on Some Countries for 90 Days, U.S. Stocks Surge

炒年糕的貓貓
Apr 11
3 min read

After Trump announced tariffs at varying levels on multiple countries, these nations responded actively to his trade demands. However, on April 9, China announced a 50% tariff on U.S. goods, raising the previous 34% tariff to 84%. As the situation developed, Trump decided to suspend reciprocal tariffs on more than 75 countries worldwide, significantly lowering the tariff rate to 10%. However, the tariffs on Chinese goods will continue to rise to 125%.

After the announcement, all three major U.S. stock indices surged, marking the largest single-day gain in years:

S&P 500 Index rose 9.52%
Nasdaq Index rose 12.16%
Dow Jones Industrial Average rose 7.87%

How Tariffs Affect the Global Economy

The Relationship Between Tariffs and Inflation

Tariffs directly increase the cost of imports, and companies usually pass on these additional costs to consumers, thus raising the prices of goods, especially those dependent on imports. As a result, consumers will need to pay higher prices for imported goods, driving up overall prices. This is known as "imported inflation."

If tariffs are applied to intermediate products (such as parts and raw materials), production costs for downstream products will also rise, leading to further price increases.

Moreover, consumers may turn to domestic goods or goods from other low-tariff countries. However, if these products are in short supply or their costs are high, inflationary pressure may worsen.

Impact of Tariffs on Interest Rates

Central Bank's Response
When tariffs cause inflationary pressure, central banks usually raise interest rates to combat inflation. Higher interest rates increase borrowing costs, suppressing market liquidity and reducing consumer purchasing willingness, which helps control rising prices.
Economic Growth Slowdown
While raising interest rates helps fight inflation, excessively rapid or high rate hikes may suppress economic growth. Higher rates increase borrowing costs, raise business operating costs, potentially lead to layoffs, and raise unemployment, further slowing economic growth.
Currency Value Fluctuations
Changes in tariffs affect international trade flows, which in turn influence capital flows and ultimately impact currency exchange rates. When capital flows into the country, it may drive up the value of the domestic currency, lowering the cost of imported goods and helping control inflation. Conversely, capital outflows can lead to currency depreciation, further raising the price of imports and putting pressure on inflation.

Global Risk Diversification Strategy

Establishing companies in different regions to spread risk is a common corporate strategy. In a globalized market environment, such a strategy helps reduce the impact of risks from any single market or region.

Trump's latest policy increases tariffs on Chinese goods to 125%, while tariffs on other countries are reduced to 10%. At this point, establishing companies in different regions can effectively avoid the risk of high tariffs.

For example, if a product needs to be exported to the U.S., companies can consider shifting production to Mexico or Southeast Asia to take advantage of trade agreements and lower tariff costs.

Case Studies:

Tesla's Global “Gigafactory” Layout

Tesla has established factories in Shanghai to supply the Chinese market, in Berlin to serve the European market, and in Texas to serve the North American market. This layout not only helps diversify geopolitical risks but also effectively reduces costs from trade tariffs.

TSMC’s Factories in the U.S. and Japan

TSMC set up production bases in the U.S. and Japan to meet the needs of clients (such as Apple and Intel) for "non-Taiwanese production," reducing supply chain risks arising from geopolitical factors.

Conclusion

Companies should choose the most suitable countries or regions to establish branches or production bases, based on specific circumstances, to reduce tariff costs and enhance market competitiveness. If you are considering setting up a company in Hong Kong or overseas, feel free to contact Oceanus Strategic Consulting.