Investors Wait to See How Reciprocal Tariffs Will Play Out

U.S. President Donald Trump further escalated a trade war on Wednesday by announcing he would impose reciprocal tariffs to match duties put on U.S. goods by other countries.

"It's our declaration of independence," Trump said at an event in the White House Rose Garden. "We will establish a minimum baseline tariff of 10%."

Rates for China would be set at 34% for China, while the European Union and Japan would face 20% and 24%, respectively.

MARKET REACTION: S&P 500 futures reversed gains and fell to a 1.7% loss, suggesting investors expect deep losses when Wall Street opens on Thursday. Nasdaq futures, reflecting tech companies such as Apple, Nvidia and Microsoft, were down 2.4% after gaining earlier on Wednesday.

COMMENTS:

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, N.C.

"When the press conference first started the President said tariffs would start with a 10% baseline across the board. That was better than expected, which was why we saw futures rallying. But once he got to specifics and started giving examples which were significantly higher than 10%, that's when futures turned around and went negative because it was worse than expected."

"In the short run tariffs are going to increase costs and reduce corporate profits. If we have a reshaping of the economy, I'm sure markets will have a different judgment but the short term knee-jerk reaction is to the initial price hikes."

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“The tariffs are a little bit on the hefty side.” “We’ll just have to wait and see if this trade war ends the way the administration would like it to...It depends on our trading partners now. Are they going to come to the table and negotiate or are they going to retaliate?” “The consequences of inflation will be felt, and that presents a dilemma for the Federal Reserve now, even though Chairman Powell has said that inflation from tariffs would be transitory...The inflation effects could get worse and we could be headed toward recession.”

"The markets have been under severe pressure and you might say they are somewhat in an oversold condition... I think the markets could rally."

FREDERIQUE CARRIER, HEAD OF INVESTMENT STRATEGY, RBC WEALTH MANAGEMENT

"Europe will be subjected to steep reciprocal blanket tariffs, 20%, towards the high end of what had been feared by market participants."

"The calculation of tariffs includes sales tax (VAT) a tax which is imposed on both domestically and foreign products and do not discriminate against US products. With the VAT being an important source of governments’ revenue, European member states can offer little flexibility. Profit taking in European equity market may well continue tomorrow."

"However, while unhelpful to economic growth, the impact of tariffs on European economies is unlikely to be too painful, simply because Europe does not trade intensively enough with the US...it could be greater depending on how the situation evolves, how the EU responds, and how badly tariffs hurt business and consumer confidence."

"We expect the EU to retaliate swiftly. It had announced specific targeted tariffs on the U.S., but delayed their implementation. We would expect them to be applied in short order."