Investing.com -- Global markets are in the red after U.S. President Donald Trump signed an executive order that will see his administration impose a 10% tariff rate on all imports from America’s trading partners starting April 5.
In addition, 60 countries identified as having substantial nontariff barriers will face reciprocal tariff rates from April 9. Trump noted that the tariffs imposed by the U.S. will be lower than the effective rates, which include nontariff barriers and currency manipulation, charged to the U.S.
He also expressed a willingness to negotiate reciprocal reductions in tariffs. A 25% permanent tariff rate will remain in place for autos, steel, and aluminum.
Analysts at JPMorgan, Bank of America, and Citi, among others, warned that the new tariff regime could lead to increased inflation throughout the year, potentially impacting consumer sentiment, real wages, and consumer spending.
The price of goods could rise, potentially driving the Personal Consumption Expenditures (PCE) inflation rate over the rest of the year. This could then result in a consumer-led slowdown later in the year, and the Federal Reserve may be unable to counteract this by easing monetary policy if inflation remains above its 2% target.
For instance, the 25% tariffs on autos, auto parts, steel, and aluminum are expected to increase the prices of new and used autos, as well as auto insurance, maintenance, and repair costs.
This could lead to sustained inflationary pressures in the broader economy, similar to what was experienced during the pandemic.
The new tariffs are expected to generate at least $300 billion in annual tariff revenues, or potentially $600 billion if the average rate is closer to 20%.
The intensifying trade war sent shockwaves through markets with the S&P 500 falling by as much as 4.5% while tech-focused Nasdaq 100 sank 5%.
Elsewhere, XAU/USD prices fell 1.2% after hitting a fresh record high with market commentator Ed Yardeni saying he expects the yellow metal to reach $4,000 by the end of the year.
"That may happen sooner if Trump persists with his Reign of Tariffs," he said today.