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Trump Tariffs Once Viewed as Punitive Now Win Market Approval

Trump Tariffs Once Viewed as Punitive Now Win Market Approval

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Trump Tariffs Once Viewed as Punitive Now Win Market Approval

(Bloomberg) -- Financial markets greeted US President Donald Trump’s tariff deal with Indonesia with little fanfare Wednesday, signaling the rate of around 20% that was once viewed as punitive is now seen as workable.

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Stocks and other assets were mixed in Asia after Trump announced a 19% tariff for Indonesian goods. Shares in the Southeast Asian nation ticked higher on optimism the new levy was at least lower than the 32% originally threatened by the president. Vietnam’s shares have risen since Trump in early July said he reached a trade deal with the nation.

The recent calm is a turnaround from earlier in the year. The market collapse, including havens such as Treasuries, was so severe in April after Trump’s global “Liberation Day” tariffs that he paused them within days.

Now, markets view them more as bargaining ploys used by the president to extract trade concessions. A number of measures of financial-market volatility, such as the ICE BofA MOVE Index of US Treasuries, have touched multi-year lows.

While countries such as India and Vietnam have attempted to negotiate US tariffs of well below 20%, Trump has said he’s eyeing blanket tariffs of 15% to 20% on most trading partners. This suggests the 20% level is no longer perceived as a penalty but rather as a standard in the negotiations.

“Indonesia’s apparent deal with Trump, alongside the UK-US deal and the Vietnam-US deal, point to the US tariffs staying in the 10%-to-20% range,” said Homin Lee, a macro strategist at Lombard Odier in Singapore. There’s some relief in Asia, but investors are largely in a wait-and-see mode as tariffs for the European Union, Mexico and Canada, which together represent half of US imports, are still in the works, he said.

The US-Indonesia agreement — which hasn’t yet been confirmed by Jakarta — would be the first struck with a country targeted by Trump’s tariff letters dispatched last week. The correspondence was seen as attempt to ratchet up pressure on negotiators before the Aug. 1 deadline for the higher duties to come into effect.

“So far, equity markets have reacted calmly as the reduction of uncertainty has been viewed positively,” said Rajeev De Mello, a portfolio manager at Gama Asset Management SA. Still, “20% US tariff levels are a worrying evolution, which would lead to a higher effective US tariff than what was expected a few weeks ago,” he said

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