Before the April 2^nd tariff announcements, the equity sell-off had been contained to U.S. markets, which were down 3% YTD, while returns were over 13% in the Eurozone and China. April 2^nd released a new level of global market anxiety, leading the S&P 500 to lose 11% in two trading days. This time, the MSCI AC World ex-U.S. wasn’t immune, also losing 11%, as risk-off sentiment increased everywhere. Since then, President Trump has announced a pause on “reciprocal” tariffs; however, the weighted average tariff rate still remains at its highest level in almost a century at around 25%. This is due to the 10% universal tariff still in place (except on USMCA-compliant imports from Canada and Mexico), 145% tariffs on China and 25% tariffs on autos, steel and aluminum. Excluding China, it would be slightly below 10%.

Here's how other countries have been reacting to the tariffs so far:

• China: In a tit-for-tat move, China retaliated against the U.S.’s very restrictive 145% tariff by hiking its own rate on U.S. goods by 84%. If previous tariffs are included, this would bring the tariff rate on U.S. imports to 101%. It also added six U.S. firms to its unreliable entity list and 12 U.S. entities to its export control list. The trade escalation could shave 0.7ppts off China's GDP growth. As such, Chinese policymakers will likely respond with additional fiscal stimulus (more government bond issuances) sometime this year. In addition, Chinese policymakers may decide to let the Yuan depreciate more meaningfully. Earlier this week, the USDCNY reached a new high of 7.35. 
• Mexico/Canada: Mexico has largely decided not to retaliate against the U.S. due to the shaky state of its economy. President Sheinbaum has been praised for skillfully navigating negotiations, increasing oversight of border crossings and drug trafficking. Canada has taken a more aggressive stance, announcing 25% tariffs against targeted U.S. goods and non-USMCA compliant vehicles.
• European Union: On Wednesday, European officials voted to retaliate against $23bn of U.S. goods but later delayed their implementation after the 90-day pause announcement. The EU likely doesn’t want to risk the hit to growth unless necessary but is ready to retaliate if tensions escalate further.  
• Asia ex-China: Even outside China, EM Asia was hit hardest by the “reciprocal” tariff announcements, given steep trade deficits with countries like Vietnam (-$109bn in 2023). Southeast Asian governments have been more conciliatory, such as Vietnam offering to lower tariffs on U.S. imports to 0%. On the other hand, Korea’s and Japan’s negotiations with the White House seem to be off to a good start.

Amid the tariff turmoil, investors should remember that the best market days often follow the worst. We recently witnessed this with the S&P 500 and Nasdaq seeing their best sessions since October 2008 (+10%) and January 2001 (+12%), respectively, after the 90-day pause was announced. While the White House seems more open to negotiations than before, elevated uncertainty and high tariff rates could still trigger volatility and downside risks, especially for highly valued companies. Investors can manage these uncertainties through active management and strong global diversification.

¹ As of the time of this publication, the current tariffs in place include 25% on non-USMCA covered goods from Mexico and Canada (10% on potash and Canadian energy), 145% on China, 25% tariffs on steel, aluminum, and autos and 10% on everything else, excluding Russia. Also, countries that import oil from Venezuela could face a 25% tariff. Auto part tariffs are planned to be implemented on May 3^rd. 

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