Waiting for Godot is a famous play, a tragicomedy, which among many things, symbolises how suffering increases with the passage of time. It has sometimes felt like this as markets have waited for “Liberation Day”, President Trump’s name for April 2nd, when he unveils the full package of trade policies and tariffs to be unleashed on global trade partners. This increase in government interference in business and commerce could ultimately have an untold impact for the economy, financial markets, supply chains, inflation and job security for millions. Most economists believe no-one wins and that is probably why protectionism of this kind hasn’t really been seen since the 1930s, and hundreds of years before that.
The flip side to this, as supporters of trade levies would argue, is that a potential US tariff of 25% on goods from Europe is not arbitrary or a negotiating tactic. They simply and logically address inherent differences between tariff and European VAT systems. This all just really highlights the sheer complexities of the potentials policies which could be announced, and why a two-step process is likely, of “substantial” tariffs on the so-called biggest (country) abusers while continuing with probes into trade practices of other countries.
Ultimately, big tariffs should mean a stronger dollar, though that is not what we saw with last week’s shock announcement of 25% auto tariffs. That either means markets don’t think this trade war will be prolonged, or tariffs are already priced in. Levies are a fresh tax on consumers and businesses and so key is whether the Fed looks through this as a one-off increase and is more concerned about a hit to growth amid a stagflationary environment.
Friday’s NFP employment data will therefore be timely as February’s spike in layoffs was a cautionary signal, while there could be more uncertainty going forward sparked by DOGE and the Federal government’s cost-cutting measures. Weak payrolls would feed the theme in markets that Trump’s policy negatives will weigh on the economy, at least until tax cuts or deregulation are announced. But will the damage have been done by then?