White House eyes China tariff cuts: How to seize market gains?

Views 28.7M Contents 1364

The Cost of Liberty - Paid By Tariffs?

Trader’s Edge joined discussion · Apr 3 14:40

Background

In one bold move which lasted nothing more than 5 mins, shockwaves were sent reverberating across the markets. President Donald Trump declared "Liberation Day" on 2nd April, and unveiled a series of sweeping reciprocal tariffs at various countries which, according to him, had huge trade deficits with the US. Additionally, there was a baseline of 10% tariff on all foreign imports.

The specific countries at which this was targeted was China, European Union, Japan, Taiwan and even Vietnam. According to President Trump, all these were done to level the playing field for American businesses. Following the announcement, global equity markets immediately melted-lower. The $E-mini S&P 500 Futures(JUN5) (ESmain.US)$ fell by nearly 3.6% at one point with $E-mini NASDAQ 100 Futures(JUN5) (NQmain.US)$ also selling off by about 4.75%.

How Are The Recipocal Tariffs Calculated

The full list of tariffs on each country can be found in this link here: www.newsweek.com

China, Japan, Malaysia and Singapore have discounted reciprocal tariffs of 34%, 24%, 24% and 10% respectively. They are circled in orange in the diagram above.

Official Calculations

So how do we arrive at the reciprocal tariff rates? According to a post by the White House, the mathematical equation used to calculate reciprocal tariffs can be found here: Reciprocal Tariff Calculations

In short, using China as an example, this can basically be presented as follows (thanks to the good folks at Reuters and New York Times):

For our friends that are interested in calculating the reciprocal tariff rates yourself, please use the following data from TradingEconomics:

- To find Imports: Imports-by-country

- To find Exports: Exports-by-country

- To find trade deficit: Import - Exports

Unofficial calculations

Interestingly, taken from the internet, it also has been debated that US officials essentially took the easy way out and decided to just ask ChatGPT on how to calculate tariffs. (Using ChatGPT to calculate reciprocal tariffs).

What This Means For the Markets

Economy

Thinking a little deeper, the reciprocal tariffs most definitely do not make sense. One look at the charts and immediately, it would be obvious that reciprocal tariffs are the highest on emerging economies such as Cambodia (49%), Laos (48%), Sri Lanka (44%), Vietnam (46%) and even Saint Pierre and Miquelon (50%).

Of course, these developing countries would have the largest trade deficits with the US. They are able to manufacture products and labour at a much lower cost price compared to the US. Similarly, they are also unable to afford what the US is selling. Therefore, naturally consumers will always buy from the lowest cost possible, hence the biggest trade deficits.

Cost of living will skyrocket in the US as the tariffs are passed onto consumers. Scarcity for "made in USA" products will also lead to rising prices and may in turn lead to runaway inflation fueling further pain for the US.

For the other countries, it would do them well to remember that the US is not the only country that has a higher consumption rate. Developing countries will just turn to bigger countries such as China, India, Japan, Eurozone to increase their trade flows.

Currencies

Already upon the announcement, we saw how the USD devalued and dropped lower. On the surface, this seems like the desired outcome that President Trump is aiming for. However, a tariff war will eventually lead to a currency war and one option would be for countries with a strong foreign reserve to start to devalue their own currencies. This is done in order to maintain their compeitiveness against the US.

It has been reported that China's PBoC is already hinting at a mild yuan depreciation to deflect 54% US tariffs. During Trump's 1st presidency, the CNH fell by more than 14% against the USD. This helped China partially offset the tariffs set against them back then. Singapore and Malaysia could very well see a slight weakening should their respective central banks step in to intervene.

Stock Markets

As at the time of writing of this article, the $E-mini S&P 500 Futures(JUN5) (ESmain.US)$ have sold off another 2.6% with $E-mini NASDAQ 100 Futures(JUN5) (NQmain.US)$ falling more than 3%. Over in Asia, Japan is the worst hit, with $OSE Nikkei 225 Futures(JUN5) (NK225main.JP)$ declining by 3% since the open and $HSI Futures(APR5) (HSImain.HK)$ is down by around 1.8%. $FTSE Singapore Straits Time Index (.STI.SG)$ and $FTSE Bursa Malaysia KLCI Index (.KLSE.MY)$ both edged lower by 0.09% and 0.29%.

Given that the announcement was a "discounted" reciprocal tariff, this means that President Trump is still holding onto another possible round of reciprocal tariff. And in the event that he chooses to implement one more round of tariffs, investors can expect to see the markets sell off once more.

While this is a developing story, at this moment, equity markets across the board are quite weak with participants either taking losses or squaring off their positions. Market breadth is quite weak across Asian markets with there being generally more declining stocks compared to advancing ones.

In fact Japan's Nikkei has been hit so badly by the sell off that if one were to invest in the markets 36 years ago in 1989, the investor would have gone through a wild swing of emotions. Profitability (in 2024) to breakeven (Feb 2025) to sitting on losses again (2nd Apr 2025).

What Can Investors do?

As highlighted recently in my Q2 2025 outlook, I pointed out that investors should take the following approach moving forward. I definitely did not expect it to be implemented so soon.

1. When it comes to stock picking, be cautiously optimistic on the US markets and employ two time-proven strategies such as:

a. Choosing 'Value' stocks over 'Growth' stocks (value investing principles help here)

i. $Vanguard Value ETF (VTV.US)$

ii. $Rydex Exchange Traded Fd Trust Guggenheim S&P 500 Pure Value Etf (RPV.US)$

b. Employing a low volatility strategy, essentially looking for low-beta stocks

2. Look to alternative asset classes for that safe haven rotation and to protect against interest rate shocks.

a. Precious metals such as Gold and Silver

i. $SPDR Gold ETF (GLD.US)$

ii. $VanEck Gold Miners Equity ETF (GDX.US)$

iii. $iShares Silver Trust (SLV.US)$

b. US treasuries, investment grade bonds, bond funds

i. $NikkoAM SGD IGBond ETF (MBH.SG)$

ii. $Ishares Treasury Floating Rate Bond Etf (TFLO.US)$

3. Consider building a dividend portfolio for that steady cash flow when capital returns are at risk

a. SG SEXY (60), Singapore's STI is the preferred choice given the current market volatility. As seen by how the STI barely fell following the announcement of tariffs.

Prepared by:

Moomoo Singapore

Isaac Lim CMT, CFTe

Chief Market Strategist

Disclaimer: This report is provided for informational and general circulation purposes only and should not be construed as an offer, solicitation, or recommendation for the purchase or sale of securities, futures, or other investment products. It does not take into consideration any particular needs of any person. This advertisement has not been reviewed by the Monetary Authority of Singapore.

For full disclaimers, please visithttps://www.moomoo.com/sg/support/topic5_935.

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more