Tariff optimism: White House narrows tariff scope, markets rally

The markets opened Monday with optimism after learning that the Trump Administration is going to limit the tariffs that will take effect on April 2. It is expected that the set of tariffs that were specifically focused on the industrial sector will no longer be applied and that, although reciprocal tariffs will be applied, the group of countries that will be affected by that measure is also limited.

What is expected now is that the Administration will impose reciprocal tariffs on the countries responsible for the bulk of US imports. So tariffs are now going to be concentrated on the 15% of countries with which the US has extensive trade imbalances. Treasury Secretary Scott Bessent has dubbed this group the "dirty 15." However, it has not yet been made public which countries these are.

Some of the countries that have major trade imbalances with the United States are Australia, Brazil, Canada, China, the European Union, India, Japan, South Korea, Mexico, Russia, Vietnam, among others. While this measure will have a significant effect on trade, it is much more limited than what was expected following Trump's order in February to federal agencies to design reciprocal tariffs for all countries with which the United States has trade relations.

Markets reacted to this change in plan with considerable optimism. The Dow Jones gained some 598 points, up 1.4%. Technology stocks rose, boosting the Nasdaq Composite, which gained 2.3%. Tesla continued a rally it began last Friday, reaching a 12% increase. While Amazon and Nvidia were up more than 3%, Microsoft and Apple also had increases, albeit less significant.

The S&P 500 had already had a slight rise last week, finally breaking a bad streak that lasted four weeks of losses, this Monday it rose 1.8 %. The president's threats to impose ever higher tariffs, and even do so on all trading partners, have had worrying effects on investors. The yield on 10-year Treasury bonds also rose to 4.33%. Yields had also been falling in recent weeks on expectations that the Federal Reserve will cut interest rates this year more than previously expected.

The Administration has said that, while no final action has been taken yet, reciprocal tariffs on the "dirty 15" are likely to go into effect almost immediately once they are announced. President Trump has also declared April 2 as "Liberation Day" for the United States. Asserting that for many years the country has been "ripped off" by other nations that have imposed huge tariff burdens without the US doing the same.