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The Atlantic leak last week was a sign that the people running foreign policy in the United States were making it up as they go along.

The reasoning behind the tariff rates today may be even worse.

Here are some examples:

These numbers were purported to be some kind of well-thought-out number to represent the sum of tariffs and non-tariff barriers on the US. They’re framed as ‘reciprocal’.

The whole exercise is a farce.

The “tariffs charge to the US” numbers are simply the US trade deficit with that country divided by total imports. South Korea, for instance, has been hit with a 25% tariff rate that is a halving of the 50% ‘calculated’ rate. How did the US do that calculation?

Imports were $131.5 Billion, exports were $65.5 billion. That leaves a trade deficit in goods of $66 billion. Take that $66 billion and divide by total imports and you get almost exactly 50%.

Another example: The trade deficit with China ($295.4 billion) / US imports from China ($438.9 billion) = 67%

That same exercise was done on every country and that’s how those numbers were calculated. If you had a deficit with the US or a number below 10%, you did no better than 10%. Critically, services trade was also left out of the equation (the US has a large services surplus).

Once that number was arrived upon it was then cut in half in some kind of ‘deal-making’ PR strategy but the implication here is that if you happened to sell your oil or computer chips to the US (sorry Taiwan) instead of China, you get smoked by tariffs. Also, it means that your dollar figure has nothing to do with non-tariff barriers.

The USTR even tried to pretend it had used a complex mathematical formula, but it’s a complete smokescreen, presumably because it didn’t give the President the number he wanted.

Shockingly, the administration might have just asked ChatGPT to do its homework. If that wasn’t bad enough, uninhabited islands were also singled out for tariffs. Even worse, they may have asked ChatGPT to generate a list of ISO country codes and that’s why Svalbard and Jan Mayen (they share a code) were listed together, even though they’re administered separately by Norway.

Another critical example is the UK and EU. The EU has a 39% rate and the UK 10%. Before Brexit, both these areas had the exact same trade and non-tariff barriers with the US. Since Brexit, very little has changed but they ended up with vastly different rates.

There is no logic here and the whole thing reeks of a slapped-together plan rolled out by unserious people.

Other troubling signs

In today’s post-announcement interview with Bloomberg, Treasury Secretary Scott Bessent was rattled and didn’t know what the tariff rates were on Mexico/Canada and was also unsure about China policy.

That suggests he could have been sidelined from tariff discussions or decision-making. He is seen as one of the people in the administration that markets trust to curb Trump’s worst instincts. Instead, it looks like he could be kicked to the curb.

What’s next

Naturally, there is time to right the ship. Someone convinced Trump not to implement the extra tariff rates until April 9, so there is time for negotiations.

Even with that, I believe the Trump Put is in deep jeopardy. This isn’t the same guy who ran the White House from 2016-2020 and bragged about every move in the Dow Jones Industrial Average. He doesn’t seem to care about pain in the markets anymore, or at least a 10% decline hasn’t been enough to get his attention. Will it take 20%? 30%?

This article was written by Adam Button at www.forexlive.com.

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A key variable in the next leg in markets is how the Federal Reserve reacts to all this. I’ve seen some research today showing this will push US inflation to 5% and that’s a big headache for Powell.

The market is pricing in a very high likelihood of a rate cut in June and about 104 bps in easing by this time next year. That all assumes the Fed looks through tariffs but some Fed officials aren’t on board with that thinking.

Powell is scheduled to speak at 11:25 am ET on Friday.

This article was written by Adam Button at www.forexlive.com.

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Fitch picked a heckuva day to downgrade a major economy.

• We forecast China’s general government deficit to rise to 8.4% of GDP in 2025, from 6.5% in 2024
• We forecast China GDP to increase by 4.4% in 2025 from 5.0% in 2024
• Tariff rise has been much more drastic and China will still be affected by a broader tariff-induced global slowdown

China’s finance ministry responded saying the downgrade is biased and cannot fully and objectively reflect the actual situation in China.

This article was written by Adam Button at www.forexlive.com.

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It’s been a bloodbath yesterday in the markets following Trump’s reciprocal tariffs announcement as risk-off flows on expected global slowdown dominated the price action.

The stock market is sensitive to future growth expectations and yesterday’s news didn’t help at all. On the contrary, it increased the probabilities of a recession.

Now traders will be on the lookout for negotiations and so on, and especially on the Federal Reserve response (Friday we have Fed Chair Powell speaking). If things continue to deteriorate and the Fed remains on the sidelines because of the inflation constraint, then we could be up for ugly days ahead.

On the daily chart, we can see that the price probed below the March low but eventually bounced back. Dip-buyers are likely stepping in here to position for a rally back into the 5855 level. The sellers, on the other hand, will want to see the price continuing lower to increase the bearish bets into the next support at 5395.

On the 4 hour chart, we can see more clearly the reaction to yesterday’s news. The buyers will need to hold the line here or things are going to fall out.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

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