What an evening. Initially, markets assumed Trump had delivered a “soft package”—until Howard Lutnick released the list of implemented tariffs, which exceeded even the most aggressive expectations, particularly for emerging market countries.

Before diving into the details of the plan, let’s summarize the key takeaways. Fortunately, we’ve been almost entirely correct in anticipating the strategic direction—though the complete lack of reciprocity in the framework did catch us by surprise.

Key Takeaways from Yesterday

1. Lack of Reciprocity in Tariff Structure
   The tariff setup lacks reciprocity, as it is primarily based on bilateral trade deficits rather than standardized measures like VAT, tariffs, or regulatory barriers. This makes it nearly impossible for trading partners to formulate a coherent response, as the U.S. reaction function becomes unpredictable. In short: an example of extremely poor policy design.

2. Negative Implications for Growth and Yields
   It’s now evident that sizable tariffs are detrimental to long-term economic growth. They suppress 5y5y forward inflation expectations and, by extension, push bond yields lower. We are likely to see a substantial further decline in 10-year yields—potentially even more pronounced than what has already materialized.

3. Severe Impact on Trade and Sentiment
   These policies are especially damaging to goods trade and come at a time when negative global sentiment is already putting pressure on the U.S. services sector. The compounding effect could be significant.

4. Market Implications
   Bottom line: expect a sharp reaction in growth-sensitive equities, lower bond yields, and a broadly weaker U.S. dollar—among other likely consequences.

Chart 1: The way the tariffs are calculated