Tariffs up. Markets down

Rob Armstrong (0:06)

Pushkin. And the fifth angel sounded, and I saw a star fall from heaven unto the earth, and to him was given the key to the bottomless pit. And he opened the bottomless pit, and there arose a smoke out of the pit, as the smoke of a great furnace, and the sun and the air were darkened by reason of the smoke of the pit, and there came out of the smoke locusts upon the earth, and unto them was given power, as the power of scorpions of the earth have power. That's Revelations 9 I read it to capture the mood of markets this morning, the day after Trump announced his reciprocal or so-called reciprocal tariffs.

Aiden Reiter (0:51)

So-called is right.

Rob Armstrong (0:54)

This is Unhedged, the markets and finance podcast of the Financial Times and Pushkin. I am Rob Armstrong. Coming to you from Unhedged headquarters in New York City, a city that is still standing as of 10.06 this morning, and I am joined by my colleague Aiden Reiter. Aiden, how are you enjoying your apocalypse?

Aiden Reiter (1:21)

You know, I was just saying that I put on a tie today because if the ship is going down, you may as well look nice.

Rob Armstrong (1:27)

Yes, that's what I'm talking about. It's like Admiral Nelson standing bravely on the poop deck as the bullets fly around him.

Aiden Reiter (1:35)

Or the people on the Titanic playing the violin as it sank slowly into the waters.

Rob Armstrong (1:39)

Yes. So let's just go through the numbers. These may be completely, almost certainly will look completely different by the time you listeners are listening to this podcast. But S&P down well over 3 percent, the NASDAQ down well over 4 percent, Big Tech is getting killed, Apple's down 9 percent, the banks are getting murdered, the dollar is down 2 percent. Treasury yields have fallen 18 basis points. For those of you who don't nerd out on treasuries, that's a big drop. Europe is down, Japan is down, China is only down a little bit. Oil is down $5 to $67. So everything, it's a sea of red to use a somewhat biblical piece of imagery for you. Where do you want to begin, Aiden? There's so much to say and reflect upon here.

Aiden Reiter (2:33)

Well, maybe let's go to the news conference that our president gave us yesterday.

Rob Armstrong (2:36)

Okay, great.

Aiden Reiter (2:37)

So he came out and there was a lot of fanfare. He brought in a retired union worker and then he laid on the tariffs.

Rob Armstrong (2:45)

Yes.

Aiden Reiter (2:45)

And these tariffs were much bigger than people expected.

Rob Armstrong (2:48)

Much bigger.

Aiden Reiter (2:49)

Right, we had gotten a couple of Wall Street estimates saying, oh well, the effective tariff rate after this might be between 10 to 20%.

Rob Armstrong (2:57)

Yeah, most people were even in the low end of that, like 10 to 15 kind of.

Aiden Reiter (3:01)

Exactly. And totally wrong. It seems like the US now effective tariff rate is somewhere between 20 and 30 Yeah. That makes us ironically one of the highest tariff nations in the world.

Rob Armstrong (3:14)

Yeah. No.

Aiden Reiter (3:14)

Or at least in the developed world.

Rob Armstrong (3:15)

We're back to almost 100 years ago, the last time we had tariffs this high, was the era of the Smoot-Hawley Tariffs. Smoot-Hawley is one of those phrases people use to scare economists' little children into eating their vegetables. And I thought what was most important, and part of what the market is responding to here, is that he said, President Trump said very clearly, this reciprocal, reciprocal, reciprocal, what they do to us, we are going to do to them. And the reality of the tariffs, even under the most charitable interpretation, is not that. Starting with the fact that every country, whatever their tariff status, gets 10%.

So right there and across the board, a 10% tariff is not a reciprocal tariff. That's point number one. Point number two is this absolutely, I was going to say something else, but I'll say unusual calculation they use to arrive at the tariff number.

Aiden Reiter (4:15)

Yeah, so maybe it's worth backing up a little on reciprocal tariffs and that this was an idea that had been kicking around the Republican world for six to seven years. In 2019, it was brought up by a bunch of people in the House saying we're gonna go line by line on other people's, on other countries' products. So you charge me 10% for coffee, I'll charge you 10% for coffee. If you are somebody who knows how coffee works, that's a bad idea. The United States does not make a lot of coffee, whereas Columbia makes a ton of coffee. Matching their tariff would result in much more expensive coffee for all Americans.