INSTANT VIEW: Trump's hefty tariffs shock markets and cause S&P futures to fall

U.S. president Donald Trump escalated the trade war by announcing on Wednesday that he would impose tariffs in return for duties imposed by other countries on U.S. products.

Trump told an audience in the White House Rose Garden that "it's our declaration" of independence. "We will set a minimum base tariff of 10%."

The rates for China will be 34% while those for the European Union, Japan and Canada would be 20% and 24% respectively.

S&P futures reversed their gains and fell by 1.6%, indicating that investors are expecting a steep drop when Wall Street opens Thursday. Nasdaq Futures, which reflect tech companies like Apple, Nvidia, and Microsoft, fell 2.3% on Thursday after earlier gaining.

COMMENTS:

JOHN HARDY CHIEF MACRO STRATEGIST SAXO BANK COPENHAGEN: I was surprised at how negative or heavy these tariffs are. This will lead to a lot of tit for tat negotiations. What concessions can the U.S. make to lower these tariffs, what leverage they use to convince other countries to reduce these levels, be it defense concerns in Europe or Japan. China, I suspect, sticks. The Chinese response may be interesting." The market's reaction is expected to be negative. Treasuries are a safe-haven trade, particularly at the low end of the yield spectrum. Even longer-term Treasuries may do well.

"If Republicans continue to hammer on about tax reductions, I wonder whether (longer-term Treasuries are a good investment). For now, the direction seems clear. "Gold, especially short-dated U.S. Treasury bonds, is the best option for parking your money. You can also use a wildcard for long-term investments."

WALTER TODD CHIEF INVESTOR, GREENWOOD CAPITAL GREENWOOD SOUTH CAROLINA WALTER: "We only have one side to the story, and that's what we do. The other side is how other countries react to what we do. This is a major factor in how the market will ultimately respond to what's being said.

The other part of the puzzle is how individual countries or groups of countries react to what's being said...depending on the actions of other countries, I still feel that the market is looking to use the 5,500 level of the S&P 500 as a springboard.

JASON BRITTON CHIEF INVESTMENT OFFICER REFLECTION ASSET MANAGEMENT CHARLESTON SOUTH CAROLINA 'I see this as a net positive. These tariff levels are a good starting point for future negotiations. Mexico and Canada remain exempted from any further tariffs. I believe the market will calm down, parse out the details and see that it is at best a mixed bag. "I am looking at the large technology companies who have huge piles of cash. If this retreat is going to pinch them, I am a buyer at a weakness. "It's the market that's overreacting and I'm happy to take full advantage."

JOHN LUKE TYNER, APTUS CAPITAL ANALYST FAIRHOPE ALABAMA, "From here on, I imagine that it will be a back-and-forth negotiation with many of these nations." From Trump's and many other people's perspectives, it is unfair to allow more free trade while other countries are pillaging us. What it has set in stone for me is that these tariffs are not temporary, they look like they are here to stay. The White House, and their staff who make these decisions behind closed door are fully aware of the policies they're putting into place. At least the rhetoric created a slowdown both in consumer spending and corporate spending. It has created a bad feeling about the future which is slowing down things. "You've seen a slowdown in capital projects and CEOs' comments on the markets and economy." "We are 120 percent or more in debt relative to our GDP." You can't kill the market and squash the economy at the same time. In many ways, the market is the economic system. So, the biggest risk is that, if the economy is messed up, even in the short-term, where does the debt to GDP ratio go? "What happens to fiscal deficits if there is a 10% or 5% decline in GDP and other economic indicators? That's when things get really scary."

CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, NORTHLIGHT ASSET MANAGEMENT, CHARLOTTE, N.C.

"At the beginning of the press conference, the President stated that tariffs would begin with a baseline of 10% across the board. Futures rallied because it was better than expected. "But once he started to give examples that were higher than 10% and he began giving specifics, the futures went negative as it was worse than anticipated."

In the short term, tariffs will increase costs and decrease corporate profits. "If we have a reshaping the economy, markets will have different judgments but the immediate knee-jerk response is to initial price increases."

Peter Cardillo, Chief Market Economist, Spartan Capital Securities, New York "We'll have to wait to see if the trade war ends in the way that the administration wants it to...It now depends on our trading partner." Will they negotiate with us or will they retaliate?

The markets are under intense pressure, and one could say that they have reached an oversold state. "I think the markets will rally."

FREDERIQUE CARRIIER, DIRECTOR OF INVESTMENT STRATEGY, RBC WEALTH MANAGERMENT "Europe is going to be subjected a steep reciprocal tariff, around 20%. This is at the higher end of what market participants had feared."

"The calculation includes the sales tax (VAT), a tax that is levied on domestic and foreign products, and does not discriminate between US products. The VAT is a major source of revenue for governments in Europe, so member states are limited in their flexibility. Profit taking on the European equity market could continue tomorrow." The impact of tariffs is not likely to be as painful on European economies, despite the fact that they are unhelpful for economic growth. This is because Europe doesn't trade with the US enough. "We expect swift retaliation from the EU." The EU had announced targeted tariffs against the U.S. but they were not implemented. "We would expect that they be implemented in a short time."

(source: Reuters)