Nick Goold
When President Trump’s administration announced major tariffs in April, markets reacted fast—stocks fell, the U.S. dollar dropped, and gold jumped on fears of slower trade and growth. Stocks have since rebounded, led by tech, but the USD Index remains below 100, showing trader caution. Now that tariffs are in place, the focus has shifted from panic to planning, separating short-term volatility from lasting trends.
From April Shock to August Recovery
In the weeks that followed, analysts warned of:
- Weaker U.S. growth due to slower global trade
- Sustained dollar weakness as investors moved capital abroad
- A prolonged equity slump driven by uncertainty
By August, those concerns had eased: inflation has risen, but the economy is proving resilient, earnings have held up, and confidence has returned to equity markets. This shift shows how markets often overreact at first, driven by uncertainty, before focusing on forecasts, sentiment, and corporate adaptation. The Nikkei 225’s rally after progress in U.S.-Japan trade talks reinforces the point—reducing uncertainty can lift risk appetite even if tariffs remain in place.
Nikkei 225 Daily Chart
The New Tariff Rules
August brought a shift from tariff headlines to real implementation, with the U.S. rolling out some of the steepest trade duties in decades on imports from Brazil, Switzerland, Canada, and India. President Trump continues to add new measures as negotiations progress, keeping uncertainty in play. Market reactions, however, have been smaller than in April as traders adjust and turn their attention toward the next potential U.S. interest rate cut.
A key unknown is the outcome of U.S.–China trade talks. The current pause on new tariffs ends August 12, and a breakdown could trigger fresh volatility across FX, equities, and commodities. For now, that deadline stands out as one of the most closely watched events on the trading calendar.
Short vs Long-Term Impacts
In the short term, market moves are often driven by herd mentality — traders reacting to headlines and following price momentum. This is why sudden tariff news or trade developments can cause sharp moves that have little to do with long-term fundamentals.
In the long term, markets are harder to forecast. Economies adjust, companies find new suppliers, and other global events (such as central bank policy or geopolitical tensions) can push prices in unexpected directions.
For traders, this means risk management is more important than predicting the future. Even if your probability of being right is below 50%, you can still make large profits if you focus on trades where the potential gain is many times the potential loss. Consistently finding asymmetric opportunities — where upside far outweighs downside — can lead to strong results over time, even with some losing trades.
Why the U.S. Economy Is Holding Up
Several factors are helping the U.S. economy weather the impact of new tariffs:
- Companies absorbing costs in the short term to keep consumer prices stable and protect market share.
- Shifting supply chains to source goods from countries not hit with the steepest tariffs, reducing direct exposure.
- Reshoring production to the U.S., a move that could create over 1.5 million jobs in the next decade and support domestic investment.
- Resilient consumer demand, with spending holding up even as certain prices have risen.
These positives, however, may be temporary. If tariffs remain in place for an extended period, companies will face greater pressure to pass on costs, which could slow consumer spending, push inflation higher, and eventually test the economy’s current resilience.
Market Impacts by Asset Class
Foreign Exchange (FX)
- USD: The USD Index fell from 105 to 97 after the April tariff announcement and has struggled to break back above 100 as markets anticipate U.S. rate cuts.
Opportunity: A stronger-than-expected economy or rising inflation could see the USD quickly rebound. - USD/JPY: Dropped from 150 to 142 in April on safe-haven yen demand, but has since recovered most losses.
Opportunity: A BoJ rate hike could push USD/JPY back toward 140, but a delay may open the door for a move above 150. - GBP/JPY: Fell from 195 to 185 in April but is now testing 200 as high U.K. inflation limits scope for rate cuts.
Opportunity: A breakout above resistance is unlikely but could trigger a sharp rally if it occurs. - EUR/USD: Has strengthened since April as the U.S.–EU rate gap narrows.
Opportunity: The current uptrend remains strong, and with EUR/USD weak for years, a softer U.S. economy could extend gains.
Stocks
- U.S. Equities: Have erased April’s losses, led by technology stocks as AI investment stays strong. Rate cut expectations later this year are fueling demand.
Opportunity: Trend remains bullish, but a breakdown in U.S.–China trade talks could spark a sharp sell-off. - Japanese Equities: Rallied strongly after the U.S.–Japan trade deal, supported by optimism over improved trade flows.
Opportunity: The Nikkei 225 could post large gains if foreign buying is as aggressive as in 2023.
Commodities
- Gold: Rising on safe-haven demand, inflation concerns, and lower U.S. rate expectations. The 39% tariff on Swiss gold has disrupted refining and delivery, adding to volatility.
Opportunity: Gold has been trading in a $3,250–$3,450 range; a break above resistance could spark a large rally. - Oil: Prices have eased on concerns over slower global demand. While not directly targeted by tariffs, weaker growth expectations—especially if U.S.–China talks fail—are bearish.
Opportunity: Oil could face significant downside if global growth slows and Middle East tensions ease.
Risks to Watch
- Inflation Pressure – As companies run down inventories, they will need to import goods at higher tariff rates, which could push prices up sharply later in 2025.
- Global Trade Retaliation – Countries affected by U.S. tariffs could respond with their own measures, targeting key U.S. export sectors.
- Policy Uncertainty – Sudden reversals or new tariff announcements can trigger large market moves.
- China Negotiations – The August 12 deadline is the most immediate risk. Failure could spark new tariffs and renewed market turbulence.
- Central Bank Policy Shifts – Interest rate decisions can have a major impact as central banks adjust policy based on their forecasts for how tariffs will affect economic growth and inflation.
The April tariff shock hit markets hard, but stocks have recovered and the USD has steadied — even though it’s still below key resistance. Markets are less nervous now, but the August 12 China deadline could quickly change the tone.
The Nikkei rally after U.S.-Japan trade progress shows that when uncertainty fades, markets can bounce even if tariffs stay. For traders, the lesson is clear:
- Focus on risk management over predictions.
- Look for asymmetric opportunities where potential reward far outweighs risk.
- Accept that many trades will lose — but a few strong winners can more than cover those losses.
