Tariff Shock and Market Response

The week was marked by a sharp drop in the main US stock indexes (S&P 500: -9.05%, Nasdaq: -9.99%), in a context of growing trade tension and economic uncertainty. The main trigger was President Donald Trump's unexpected announcement to impose a 10% base tariff on all imports to the US, excluding Mexico and Canada, but with significantly higher "reciprocal" rates - of up to 50% - for approximately 60 countries with trade surpluses vis-à-vis the US. According to the Office of the U.S. Trade Representative, the reciprocal tariffs do not seek to match the rates applied by other countries, but are calculated based on what is necessary to "balance" bilateral deficits.

Although the final tariffs were set at about half of what was calculated, as a supposed gesture of generosity, the immediate effect on the markets was devastating. Starting next week, the average effective tariff rate in the U.S. is expected to reach between 22% and 25%, with specific new levies expected in sectors such as pharmaceuticals, semiconductors and lumber. In response, Canada imposed a 25% tariff on some U.S. vehicles, while China matched the 34% tariff on imports from the U.S., and the European Union promised retaliatory measures. Although Trump said he was willing to negotiate if he received "phenomenal offers," the next day he stated that his policies "will never change."

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