Trump's trade war tests the stock markets

Trump announced late yesterday evening Danish time that he will now expand his tariff demands to include more countries and higher rates. PFA's chief strategist, Tine Choi Danielsen, provides an overview and assessment of the proposal, which will raise the highest tariff barriers around the American economy in more than 100 years.

Which product groups and countries are affected by the new tariffs that Trump proposed yesterday?
Immediately, the USA’s imports from all countries will be subject to a minimum tariff of 10 percent, which comes into effect on April 5. Only Canada and Mexico are currently exempt, and imports from these countries are taxed based on the trade agreement Trump made with them during his first presidential term.

In addition to the minimum tariff, there will be an individual retaliatory tariff based on the size of the USA’s trade deficit with each country. This comes into effect on April 9. For the eurozone, this means that the total tariff will be 20 percent, while for several Asian countries it will be over 40 percent. Some products are currently exempt from the retaliatory tariff, including copper, medicine, and microchips.

How have the reactions been on the stock markets? Globally and in Denmark?
The size and scope of the tariffs are worse than feared, and global stock markets opened in red this morning. The European Stoxx50 index is currently down by 3.5 percent, while the American stock market opened with a drop of 3.5 percent. In Denmark, the OMX C25 has fallen by just over 2 percent.

At the same time, investors are seeking safe haven in government bonds, which has sent interest rates down to the lowest level since early March when Germany announced the large investment package.

It is expected that the EU will respond with a coordinated countermeasure. What is planned?
The EU has so far remained cautious but has signaled that it is ready to respond. On April 13, the EU is expected to impose additional tariffs on a range of American products in response to Trump’s tariffs on steel and aluminum. However, it appears that they will try to negotiate with the USA before these tariffs are implemented. Trump has previously threatened even higher tariffs if other countries retaliate, so it could get worse before it gets better.

Tariffs are often referred to as a 'tax on consumption' because tariffs typically mean more expensive goods. Can you say something about who will be affected and what it means for growth expectations?
The new tariffs will weigh down activity among all exporters and thereby negatively impact growth in Europe, Asia, and the rest of the world. The USA will also be affected, as the prices of imported goods are expected to take a significant jump upward, thereby weakening purchasing power and private consumption.

At the same time, we have already seen that the trade war has increased uncertainty and created concerns about the future of global supply chains, which is bad for activity.

The higher-than-expected tariffs mean that the market will again have to downgrade expectations for global growth and upgrade expectations for inflation.

What is PFA doing to protect its customers from the negative consequences that a more extensive trade war can bring?
The increasing uncertainty has led us to reduce our equity risk in general. Additionally, we have made some adjustments in the short term. Specifically, we have sold American stocks and reduced our exposure to the dollar. We have done this to protect our customers' pension savings in a time when there is so much uncertainty coming from the USA.

That being said, it is important to remember that pension is long-term savings. The declines that have occurred should therefore also be seen in light of the fact that a typical PFA customer has received solid double-digit returns both in 2023 and 2024. In the long term, we therefore stick to our overall investment strategy, where we have distributed the 700 billion DKK that we manage for the Danes across a wide range of assets: stocks, bonds, real estate, wind farms, forests, and much more. This provides both returns and stability - even in turbulent times.