Mint Primer: What Trump’s tariff tantrums mean for investors

The global economy may be heaving a sigh of relief for now, but are Indian companies out of the woods completely? And will investors have to adjust to this new reality of hyper-volatility? Mint takes a look at the various implications.

What has been Trump’s latest announcement?

In a stunning U-turn, Trump on 9 April announced a 90-day pause on his reciprocal tariffs, just hours after levies against the US’ top trading partners kicked in. However, he jacked up levies on China to 125%, effective immediately, from the previously announced 104% as he flayed Beijing for a “lack of respect that China has shown to the World’s Markets". 

The 10% baseline tariff on almost all US imports remains in place. Interestingly, just about four hours before his policy reversal, Trump put out this post on Truth Social platform - “THIS IS A GREAT TIME TO BUY!!! DJT"

What prompted this policy flip-flop?

Deducing motives for Trump’s actions is often an exercise in futility, but even by his chaotic standards, the tumult around tariffs has been mind-boggling. Many experts think the very purpose of Trump’s gambit of imposing high reciprocal tariffs was to get countries to the negotiating table faster. Trump’s core voter base in the ‘rustbelt’ of Middle America would be cheering his show of strength and loud proclamations of bringing back manufacturing jobs. 

The ghastly market meltdown, with Wall Street losing around $6 trillion in four days and bond yields spiking, too might have forced the Trump administration to take a relook at their hard stance.

How has the market reacted to the latest development?

The S&P500 benchmark soared 9.5% on Wednesday to post its biggest single-day gain since October 2008 during the global financial crisis. The tech-heavy Nasdaq Composite index vaulted over 12% -- marking its biggest jump since January 2001 during the dotcom bubble. The cheer spread to Asian markets as well, with Japan’s Nikkei surging 8% and South Korea’s Kospi climbing around 6%. Chinese markets too gained amid reports that top officials are discussing a stimulus package for the economy.

Also Read: Advantage India in electronics as Donald Trump pauses tariff, hints at exemptions

What does this mean for India?

The tariff deferral not only comes as a major relief to exporters but also gives the government some breathing room as it seeks to fast-track the ongoing negotiations with Washington for the proposed US-India bilateral trade agreement. However, relief for domestic industries can be short-lived. Firstly, the world’s top two economies engaging in a trade war is not good news for the global economy. Secondly, Chinese exporters, locked out of the US, will likely flood other markets with cheap supplies, which can hit Indian firms hard.

Also read: The tariff timeline: How Trump 2.0 policy is reshaping global trade

How should investors navigate this phase?

Reciprocal tariffs have been paused, not cancelled, so the Damocles' sword is still hanging over the system. Also, as long as Trump remains in charge, markets will have to learn to live with chaos. In such a scenario, experts say tweaking your portfolio in favor of domestic themes might be a good idea.

“Large-cap equities anchored to India's domestic consumption story offer resilience. Also, a strategic allocation to gold serves as an effective buffer against global uncertainties," Puneet Sharma, CEO and fund manager at Whitespace Alpha, told Mint. Some analysts also suggest increasing the cash position and maintaining an investment horizon of at least 12-18 months. 

Another key monitorable is China. A mega stimulus might redirect FII flows to the country, hurting other markets like India, but robust Chinese demand might also prop up prices of metals, minerals and other commodities.