Global financial markets were in disarray on Thursday, April 3, after President Donald Trump announced reciprocal tariffs ranging from 10% to nearly 50% on all imports.
According to Dan Ives, a senior Wedbush analyst, investors are reeling because the tariffs announcement was “worse than the worst-case scenario.”
Still, during his speech at a White House event, Trump said his tariffs were actually “kind” compared to duties and trade barriers that partner countries currently have in place against American goods.
U.S. stocks as tracked by the benchmark S&P 500 Index ($SPX) ended more than 4.8% down on Thursday. Versus its year-to-date high on Feb. 19, the index is now down about 12%.
What Are Reciprocal Tariffs?
You can think of reciprocal tariffs simply as a tit-for-tat strategy.
If a trade partner slaps a 20% tariff on U.S. products, the White House responds with a tariff on imports from that country to address trade imbalances and encourage fairer trade practices.
In the long run, the Trump administration expects its “reciprocal” tariffs to help lower the nation’s trade deficit.
Who Pays the Price?
The immediate burden of higher tariffs typically falls on importers – they’re the ones who end up paying additional duties.
Businesses reliant on imported goods face higher operational costs, which tend to squeeze their profit margins. However, these costs are often passed down the supply chain, ultimately affecting consumers.
For example, the Trump administration has announced a 25% tariff on all imported cars and auto parts. This is expected to increase car prices, eventually hurting affordability and overall demand.
Who Benefits from Reciprocal Tariffs?
Reciprocal tariffs tend to be a positive for domestic industries that compete with imported goods.
What they do essentially is make foreign products more expensive in order to create a protective buffer for local manufacturers that helps boost both production and employment.
For example, reciprocal tariffs on imported steel could meaningfully increase the demand for domestic producers and drive their stock prices up. The Vaneck Steel ETF (SLX) is currently down sharply versus its 2024 high as shown in the chart below. Domestic steelmaker Nucor (NUE) is one stock that has been predicted to benefit from the reciprocal tariffs.
Finally, tariffs generate more revenue for the government, which can be reinvested in infrastructure and other initiatives.
