Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
The Macro Brief – Turning up the tariffs
737 Plays15 days ago
Shanella Rajanayagam, Paul Mackel and Simon Wells discuss the implications of the latest US tariff announcements for trade, currencies and Europe’s economy.
Disclaimer: https://www.research.hsbc.com/R/101/DqG7whw
Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/or click here: https://www.gbm.hsbc.com/insights/global-research.
Recommended
Transcript
Introduction to HSBC Global Viewpoint Podcast
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto today's show.
00:00:23
Speaker
This podcast was recorded for publication on 3rd of April 2025 by HSBC Global Research. All the disclosures and disclaimers associated with it must be viewed on the link attached your media player. And don't forget to follow us, just search for The Macro Brief wherever you get your podcasts.
US Tariffs Announcement by President Trump
00:00:46
Speaker
Hello, I'm Peter Stegall and welcome to the Macrobrief. There's only one story this week. On Wednesday, President Trump announced sweeping new US tariffs. Among the headlines are a 10% baseline tariff due to come into effect on 5 April, with further reciprocal tariffs on individual economies due shortly after.
00:01:03
Speaker
There's lots to unpack here. So to assess the possible implications, I'm joined by Schnella Rajanayagam, trade economist, Paul Mackle, global head of FX research, and Simon Wells, chief European economist.
00:01:16
Speaker
Thank you everyone for joining today. So, Chanel, let's start with you. What just happened? Well, Peter, as you said, President Trump used powers under the International Emergency Economic Powers Act to implement a universal baseline tariff of 10% on imports from all countries that will kick in on the 5th of April.
00:01:36
Speaker
And then from the 9th of April, this particular rate will increase for around 60 economies, including the European Union, and ah which means that countries like China will now face a tariff rate of around 34%,
00:01:49
Speaker
the EU will face a 20% tariff and countries like Vietnam and Cambodia a tariff of more than 45%. So really quite sweeping. and There was also some announcements around the de minimis treatment, which is essentially the treatment for low value shipments.
00:02:05
Speaker
And of course, the autos tariffs, which were mentioned last week, they have now taken effect initially for vehicles and later on for parts. So how much of this was expected?
Impacts and Surprises of the New Tariffs
00:02:16
Speaker
and How much of it came as a surprise?
00:02:18
Speaker
So in terms of the reciprocal tariffs, I'd say what was the main surprise was the sheer number of different rates on different economies. So it wasn't tariff buckets as some were expecting.
00:02:30
Speaker
It wasn't you know investigations into the trading practices of some of these economies, but really quite high tariffs. Clearly, it's to provide some room for negotiation.
00:02:41
Speaker
But the question really remains, to what extent can some of these economies really actually negotiate down these very high duties? And so you say there's a range of different tariffs being levied on different places.
00:02:53
Speaker
Are there any relative winners? Has anyone been surprisingly spared or facing lower tariffs than we might have expected? So some economies have managed to escape the individual higher reciprocal tariffs and they will only face the universal baseline tariff of 10%.
00:03:08
Speaker
Notable among these is the UK, especially given that the European Union is now facing a much higher tariff rate. Also, economies within the Middle East region will only face the 10% rate and notably, of course, Brazil too.
00:03:23
Speaker
To add to all of this, Canada and Mexico have been exempted from the new round of tariffs. And so none of these, the baseline tariff or the higher reciprocal rates will apply to imports from these markets.
00:03:35
Speaker
And in terms of sectors, there are some carve outs there too, I think. That's right. So some sectors have been exempted from these additional duties, ah notably any sector that's currently facing Section 232 tariffs. So for example, steel, aluminium, autos.
00:03:52
Speaker
There's also exemptions for sectors such as semiconductors, pharmaceuticals, copper, wood, and also some critical minerals and energy imports as well.
Reactions and Countermeasures from Trading Partners
00:04:03
Speaker
So how have the US's trading partners reacted to these announcements?
00:04:07
Speaker
So, so far, the reaction has been that some will be looking to levy countermeasures. For example, Canada has come out and said that, as well as China. Other partners, it seems as though they're waiting to see how exactly negotiations pan out, ah like the UK, for instance.
00:04:24
Speaker
ah But often it will be exactly what the European Union does, given that this is the first time it's really been hit by a big sweep of tariffs from the US. And actually, maybe that's one for Simon. How do you think ah the EU might respond to these sweeping tariffs?
00:04:39
Speaker
Yeah, well, I don't think um they're going to do anything in a hurry. There's a ah meeting of trade ministers scheduled for Monday, the 7th of April. We're certainly got not going to hear anything ah specific ahead of that.
00:04:53
Speaker
ah But the EU has a range of tools that it perhaps didn't quite have in the first Trump presidency, which it can use. But ah really, it's a very trade-intensive economy. It doesn't want to ah escalate. On the other hand, it has said it doesn't want to retaliate, but if necessary, it will have a strong plan.
00:05:14
Speaker
The key question for Europe, though, I think, is can it remain unified, given that each country leader is going to be under enormous pressure from domestic industry,
00:05:26
Speaker
not to harm it and retaliate strongly. That maybe is limits the amount of tough talk that the European Commission can follow through on.
00:05:36
Speaker
And also, of course, there's wider geopolitical issues that it has to consider in in any retaliation. So I think, yes, there will be some countermeasures, but they will be targeted and considered, and it may be a while before we hear what they are.
Economic Impact on Europe and the UK
00:05:53
Speaker
So Simon, you've just come back from Hong Kong where you said there was a lot of investor interest about Europe on the back of its planned fiscal stimulus. Do you think the impact of these new tariffs will outweigh the potential benefits of that stimulus?
00:06:06
Speaker
Well, I think they sort of operate on two different time horizons, really. The impact of the tariffs could be quite immediate. And particularly, of course, if there's no negotiation at all and we get the full 20 percent on the EU in a lasting and full implementation way, then, yes, that adds considerable downside risks to the economic outlook ah in the near term.
00:06:32
Speaker
But in the reports we've written on the subject in terms of the defence spending, in terms of the infrastructure spending, this is going to take a while to ramp up. The numbers are big, but actually getting the money to hit the ground, particularly defence, without sucking in a lot of imports is is a challenge.
00:06:50
Speaker
So I think really, yes, this increases downside risks in the very near term and perhaps the medium term as well. But the upside um from some of the potential fiscal stimulus is still there on a longer horizon.
00:07:04
Speaker
So Simon, Schneller mentioned earlier that the UK is facing a 10% tariff, half of the 20% tariff that the EU is facing. Is this good news for the UK? Well, of course, it depends which way you look at it. And the previous existing average tariff on the UK from the US was pretty low and a lot lower than 10%. So this is a significant step up that will have an impact um on the UK's exports to the US and goods exports to the US are about 15% of the total. So it's big.
00:07:35
Speaker
On the other hand, yes, if the UK was still in the EU, it probably be facing 20% tariffs. So in that sense, there are people who are saying this is, of course, a benefit of Brexit.
00:07:47
Speaker
And does this new news on US tariffs affect your views about what the European Central Bank or Bank of England might do next? Well, as say, we have to just wait a little bit to see how the negotiations proceed and see what is ultimately enacted.
00:08:03
Speaker
It does increase the downside risk to growth and therefore a little bit of more disinflationary pressure potential. Crucially, though, the degree of retaliation will matter a lot for the inflation implication.
00:08:17
Speaker
And whether or not the central banks just look through that one off is key. So in answer to your question, still think the ECB are going to cut ah in April. If they are going to pause, June is the more obvious time where they have a forecast to assess all of this news.
00:08:32
Speaker
As for the Bank of England, yeah, think they're going to cut in May, but ah they'll still be pretty cautious, potentially given some of the upsides for inflation from retaliation. But certainly it chimes with our view that the Bank of England is going to cut more than the market has been expecting.
00:08:46
Speaker
Thank you very much, Simon. So Simon's saying there that the macroeconomic outlook, you often have to wait a little while before the full results are evident. There's no luxury of time when it comes to reactions in the currency market, though. So um Paul, perhaps we could turn to you.
Currency Market Reactions
00:09:01
Speaker
How have currency markets reacted to the US tariff news? It's been incredibly volatile since the announcements. And we can see that in terms of how the dollar really weakened very sharply versus a number of major currencies, primarily ah the euro and also the Japanese yen.
00:09:18
Speaker
But when there's been different stages, more or less, to how this story has evolved. At first, there was a sense of risk aversion and the dollar was trying to rally. But then clearly the FX market started to become more concerned about the U.S. growth outlook.
00:09:32
Speaker
In other words, how much it could potentially slow. And that's been, as I said, weighing on the dollar ah since that brief moment of risk aversion being expressed ah in exchange rates.
00:09:44
Speaker
So usually the US dollar would tend to strengthen in uncertain times, but you say that doesn't seem to be happening today. Do you think its safe haven allure will increase in the coming days?
00:09:54
Speaker
It's a popular topic of discussion lately. So when we've had these pockets of risk aversion over the last couple of months, the dollar is not strengthening with that. I think there are some reasons why.
00:10:06
Speaker
First of all, is that the positioning in the FX market was a problem. I mean, for a good number of months there, ah the market was overly long the dollar. So when you had these scary moments in markets, it was very hard for the dollar to be rallying into that type of environment.
00:10:21
Speaker
The second thing probably comes down to gold. Is it providing somewhat of an alternative as a safe haven and in these uncertain times? that's stealing the thunder of the U.S. dollar.
00:10:33
Speaker
But ultimately, we don't think a leopard is changing spots. If markets were to get increasingly concerned about a U.S. slowdown or a recession type story that feeds into more concerns about the global economy, ultimately, we think that the dollar would begin to stabilize, if not strengthen.
00:10:49
Speaker
And so what's your call for the rest of the year? Do you think the dollar will gain more strength? But in the very short term, I think it's going to be difficult for the dollar to stabilize. There's a lot of uncertainty about what's happening with regards to the US economic outlook, how the hard data evolves.
00:11:05
Speaker
And clearly, the market is quite concerned about how the dollar has been trading. Ultimately, we think some stability can come back ah for the dollar. But it's going to be a longer term story whether the Trump administration can come out with policies ah in terms of deregulation potentially, or even the tax cut story that can improve sentiment.
00:11:26
Speaker
If that happens, perhaps that can bring back some shine to the dollar again, but it's going to be a very bumpy few months. Paul, thank you very much. And one final question for for each of you.
00:11:37
Speaker
There's obviously plenty of uncertainty about how the situation might develop and what the impact of these latest policy moves could be.
Future Watch: Key Data Points and Decisions
00:11:44
Speaker
What's one key thing, one data point or decision that you'll be watching out for in the coming days? Perhaps, Sinella, we could start with you.
00:11:51
Speaker
So I'll be watching out for how the negotiations actually evolve and and particularly what tariffs actually get implemented on the 5th of April and more importantly on the 9th of April.
00:12:02
Speaker
Thank you. Simon? I think I'm going to be watching exactly the same thing. i mean, that's that's absolutely key to the outlook, both for Europe and and global.
00:12:13
Speaker
I would also add, though, and Paul's hinted at this, that, of course, the US is going to be particularly data dependent and and the labour market is going to be key ah for the Federal Reserve.
00:12:24
Speaker
So I guess the US labour market indicators also, but really it's all about how those negotiations evolve. Thank you. And Paul, a final word from you. What are you watching? While I would echo those comments and thinking being very important, I'll be looking at how some currencies, the defence lines, whether they hold up.
00:12:43
Speaker
So, for instance, with Asian currencies, will some central banks be a little bit more tolerant of currency weakness to help offset these tariffs? If that's the case, we could be moving into a new dimension of volatility in the currency market.
00:12:58
Speaker
Shanela, Simon, Paul, thank you very much. Thank you. Thank you.
00:13:07
Speaker
That were Schnella Rajneigam, Paul Mackle and Simon Wells on the impact of sweeping new US tariffs. If you want more information on the implications for Asia, then please listen to a special edition of our sister podcast, Under the Banyan Tree, hosted by Fred Newman, our Chief Asia Economist and Harold van der Linde, Head of Asia Equity Strategy.
00:13:27
Speaker
HSBC clients can keep up to date on our latest research on tariffs by downloading our app. It's available on Apple's App Store and Google Play. And if you have any questions or comments about anything we've talked about today, please contact us at askresearch at hsbc.com.
00:13:46
Speaker
That's all from us today. Don't forget to like and subscribe to the podcast and please share it with friends and colleagues. We'll be back again next week. So until then, thanks for listening.
00:14:15
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.