President Donald Trump has introduced further volatility and uncertainty in the ongoing trade conflict by exempting several consumer electronics and essential tech components from tariffs. This decision is anticipated to positively impact shares of U.S. technology companies and the broader stock market, while the bond and currency markets may respond differently.
Recent developments indicate that Trump can influence substantial market rallies. The recent exemptions to his “reciprocal tariffs” are expected to elevate stock prices, but they may not have the same effect on bond and currency markets.
On Wednesday, U.S. stock indexes experienced significant gains following Trump’s announcement of a 90-day hiatus on some steeper tariffs, although tariffs on China were increased. This move helped recover some of the $6 trillion in market capitalization lost after his “Liberation Day” tariff declaration surprised global investors.
In an unexpected turn, the U.S. Customs and Border Protection issued new guidance late Friday night regarding these reciprocal tariffs, exempting various imports such as smartphones, computers, semiconductors, chip-making equipment, flat panel TVs, and crucial tech components. This development is expected to drive further gains in stock markets when they reopen. In a post on a social media platform, Wedbush analyst Dan Ives referred to Trump’s exemptions as the “best possible news for tech investors,” suggesting it alleviates significant concerns within the sector.
However, recent declines in the dollar and Treasury bond markets indicate that while the tariff reprieve may encourage stock investors seeking quick returns, it will not offer reassurance to currency and bond investors prioritizing long-term stability.
Trump’s 90-day tariff suspension on Wednesday initially lowered Treasury yields from their peak, but they resumed their increase later in the week as bonds sold off despite rising stocks.
Amid a shift away from the dollar, traditional U.S. assets perceived as safe havens are reportedly losing that status. Former Treasury Secretary Larry Summers warned that U.S. bonds are now trading similarly to those from emerging market nations.
George Saravelos, Global Head of FX Research at Deutsche Bank, noted in a report this week that the market is undergoing rapid de-dollarization, stating that investor confidence in U.S. assets has diminished. Saravelos mentioned that the process is unfolding faster than expected and that its orderliness remains uncertain.
Similarly, Minneapolis Federal Reserve President Neel Kashkari highlighted recent movements in the dollar and bond markets as indications of investors diverting from U.S. assets. He remarked that under usual circumstances, large tariff increases would lead to a stronger dollar, but its decline suggests a shift in investor preferences.
Historically, predictions of the dollar’s decline have often not materialized. Nonetheless, the trend of de-dollarization has persisted for years, particularly after Russia’s invasion of Ukraine in 2022, which led to sanctions on Moscow and prompted other nations to reconsider the safety of their dollar holdings. Following these events, central banks have accumulated gold, which has reached record high prices since Trump’s tariff announcements, while major economies like China, India, and Brazil increasingly use non-dollar currencies in international transactions.
Tariffs have challenged the prevalent belief in “American exceptionalism,” and increasing debt may eventually undermine the “exorbitant privilege” that the U.S. enjoys. Furthermore, the global community’s confidence in America was already waning as Trump surprised long-standing security allies and trading partners during his tenure.
Now, the imposition of the highest tariffs in over a century, despite repeated adjustments, might lead to a lasting divide. Saravelos expressed in another note that the market is reassessing the structural attractiveness of the dollar as the global reserve currency, highlighting the currency’s and U.S. bond market’s continued decline as the week concluded.
