Dow, Gold recovered from hotter inflation low on tariff delay

·       But Tariff/GST king India’s Nifty slid on Trump’s reciprocal tariffs threat targeting even GST/ED, which may affect both public & PVT sector revenue

·       Germany’s export-heavy Dax-40 surged to life time high on hopes of a US-EU trade deal after the EU took steps to lower tariffs on US goods/cars

·       Trump delayed the actual implementation of reciprocal tariffs and all other tariffs till March’25, paving the way for trade negotiations and a favorable deal

On Wednesday, Wall Street Futures and gold stumbled on hotter-than-expected core CPI inflation data and less dovish Powell talks; but recovered later to some extent after House Speaker Johnson indicated selected tariff exemption. Also, Ap0ple, Tesla, and CVS Health helped; NQ-100 closed in green. On Thursday, as highly expected, US President Trump signed a memorandum to review reciprocal tariffs but refrained from immediate action, while hinting at potential auto tariffs. Tech stocks led the gains, with Tesla jumping 5.7%, Nvidia up 3.2%, and Apple rising 2% after CEO Tim Cook teased a new product. Meanwhile, defense stocks weakened as Trump proposed halving defense spending, sending Lockheed Martin and Northrop Grumman down 1.7% and 3.5%, respectively, General Dynamics lower by 2%, and Huntington Ingalls slipping 1.6%. January’s PPI increased 0.4%, surpassing forecasts, though key PCE components suggested inflationary pressures may be cooling.

On late Thursday (13thFeb’25), President Trump signed an executive order to implement "reciprocal" tariffs, aiming to balance trade by matching the tax rates that other countries impose on U.S. imports through tariffs and VAT/GST (sales tax). This move seeks to encourage foreign nations to reduce their trade barriers against American products.

The new reciprocal tariffs will be tailored based on the unique trade conditions with each partner, considering factors such as government subsidies and currency valuations. This complex approach could face significant disputes from trading partners.

The administration plans to target countries with high trade surpluses with the U.S. and those with value-added taxes or other regulatory regimes considered unfair to American companies. Commerce Secretary-designate Howard Lutnick indicated that studies would be completed by April 1, with potential action by April 2 by President Trump.

While the tariffs aim to make competition fairer for U.S. manufacturers, they may ultimately increase costs for American consumers and businesses. The new tariffs target value-added taxes and other trade barriers from foreign countries and could trigger retaliatory tariffs, possibly causing a trade war. Although Trump is confident about short-term pain for long-term gain, he is not so confident.

The announcement has sparked mixed reactions. Stock markets reacted positively to the delay in tariff implementation, while concerns were raised about potential cost implications for consumers and global trade uncertainty. European leaders promised counter-measures if the tariffs were enforced, underscoring the fraught international trade environment.

President Trump has directed his administration to consider imposing reciprocal tariffs on countries that have higher tariffs & sales taxes on American products. On Thursday, he signed a memorandum ordering his administration to weigh reciprocal tariffs, threatening to impose levies on U.S. imports from nations that put higher duties on American products. The president's team will devise new tariff levels reflecting countries' tariffs, sales taxes, subsidies, and other policies affecting trade with the US.

Key points: Trump’s Reciprocal (Tit-for-Tat) Tariffs

·       The White House states that the plan will seek to correct long-standing imbalances in international trade and ensure fairness

·       Trump says the tariffs are meant to level the playing field

·       The tariffs could begin to be imposed within weeks as Trump's trade and economic team studies bilateral tariff and trade relationships

·       Howard Lutnick, Trump's pick for Commerce secretary, said the administration would address each affected country one by one and that studies on the issue would be completed by April 1

·       These tariffs would match the higher duty rates (tariffs +VAT/GST) charged by other countries and counteract non-tariff trade barriers

·       The announcement appeared designed to trigger talks with other countries, and Trump would gladly lower tariffs if other nations lowered theirs

·       Developing nations are poised to bear the brunt of these tariffs, with countries like India, Brazil, Vietnam, and various Southeast Asian and African nations being particularly affected

·       The potential for a significant increase in tariffs has raised concerns about its impact on the global economy, which could lead to reduced growth and heightened inflation

·       Trump has already unveiled tariffs on Canada, China, and Mexico and announced 25% tariffs on steel and aluminum that are scheduled to take effect in March

·       Trump is also looking at separate tariffs on cars, semiconductors, and pharmaceuticals

·       Trade experts say structuring the reciprocal tariffs that Trump wants poses big challenges for his team

FACT SHEET: PRESIDENT DONALD J. TRUMP ANNOUNCES “FAIR AND RECIPROCAL PLAN” ON TRADE

February 13, 2025

“THE “FAIR AND RECIPROCAL PLAN”: Today, President Donald J. Trump signed a Presidential Memorandum ordering the development of a comprehensive plan for restoring fairness in U.S. trade relationships and countering non-reciprocal trading arrangements.

The “Fair and Reciprocal Plan” will seek to correct longstanding imbalances in international trade and ensure fairness across the board.

Gone are the days of America being taken advantage of: this plan will put the American worker first, improve our competitiveness in every area of industry, reduce our trade deficit, and bolster our economic and national security.

AMERICA WILL NO LONGER TOLERATE UNFAIR TRADE PRACTICES: The United States is one of the most open economies in the world, yet our trading partners keep their markets closed to our exports. This lack of reciprocity is unfair and contributes to our large and persistent annual trade deficit.

There are endless examples where our trading partners do not give the United States reciprocal treatment.

The U.S. tariff on ethanol is a mere 2.5%. Yet Brazil charges the U.S. ethanol exports a tariff of 18%. As a result, in 2024, the U.S. imported over $200 million in ethanol from Brazil while the U.S. exported only $52 million in ethanol to Brazil.

The U.S. average applied Most Favored Nation (MFN) tariff on agricultural goods is 5%. But India’s average applied MFN tariff is 39%. India also charges a 100% tariff on U.S. motorcycles, while we only charge a 2.4% tariff on Indian motorcycles.

The European Union can export all the shellfish it wants to America. But the EU bans shellfish exports from 48 of our states, despite committing in 2020 to expedite approvals for shellfish exports. As a result, in 2023, the U.S. imported $274 million in shellfish from the EU but exported only $38 million.

The EU also imposes a 10% tariff on imported cars. Yet the U.S. only imposes a 2.5% tariff.

A 2019 report found that across 132 countries and more than 600,000 product lines, United States exporters face higher tariffs more than two-thirds of the time.

This lack of reciprocity is one source of America’s large and persistent annual trade deficit in goods: closed markets abroad reduce U.S. exports and open markets at home result in significant imports, both of which undercut American competitiveness.

The United States has run a trade deficit of goods every year since 1975. In 2024, our trade deficit in goods exceeded $1 trillion.

Thanks to the proliferation of non-reciprocal barriers in just the last few years, the U.S. now runs a trade deficit in agriculture, worth around $40 billion in 2024.

Though America has no such thing, and only America should be allowed to tax American firms, trading partners hand American companies a bill for something called a digital service tax.

Canada and France use these taxes to each collect over $500 million per year from American companies.

Overall, these non-reciprocal taxes cost America’s firms over $2 billion per year.

Reciprocal tariffs will bring back fairness and prosperity to the distorted international trade system and stop Americans from being taken advantage of.

THE ART OF THE INTERNATIONAL DEAL: President Trump continues to deliver on his mandate given to him by the American People to put America First when it comes to trade.

As President Trump said in the Presidential Memorandum on American First Trade Policy on his first day in office, trade policy is a critical component of our economic security and national security.

In his first term, President Trump successfully ended the outdated and unfair NAFTA, replacing it with the historic USMCA to deliver one of the largest wins for American workers.

When our national security was threatened by a global oversupply of steel and aluminum, President Trump took swift action to protect America’s national security by implementing tariffs on imports of these goods.

In response to China’s intellectual property theft, forced technology transfer, and other unreasonable behavior, President Trump acted with conviction to impose tariffs on imports from China, using that leverage to reach a historic bilateral economic agreement.

Just last week, President Trump leveraged tariffs to force Canada and Mexico to make long-overdue changes at our northern and southern borders, ensuring the safety and security of American citizens.”

On Thursday, Trump said about India:

·       Trump - Modi press conference: Modi says set target to double bilateral trade

·       We will increase military sales to India

·       We will provide F-35 stealth fighters to India

·       Strong cooperation with India, Australia, and Japan is crucial to peace

·       We have approved the extradition of a person related to the Mumbai attack

·       India announced the reduction of tariffs

·       Modi and I will begin talks on disparities in trade

·       Our goal is to sign an agreement

·       We are entitled to a level playing field

·       We can make up the deficit with the sale of oil and gas

·       Reached agreement on energy

·       We hope to be the No.1 supplier to India

·       U.S. and India will build a great trade route including Italy and Israel

·       We have agreed to work with India on a trade route with undersea cables and train routes

·       Indian PM Modi says set target to double bilateral trade

·       India has set a target to double bilateral trade to USD 500bln by 2030

·       India and the US discussed increasing cooperation on small modular nuclear reactors

·       The US plays a role in India's defense preparedness

·       Senior Trump official: Hope to have a bilateral trade deal with India this year

·       We are moving towards signing a new India-US defense framework

·       Tariffs on China give India an opportunity

To date, Trump has not imposed any additional tariffs on any country including India.  These Trump tariffs threats are all negotiation tactics to get a favorable deal--all tariff plans including metal, and reciprocal would be postponed till at least Mar 25. India will buy defense and energy from the US--but Trump is now also targeting VAT/GST and any drastic reduction of tariffs would be negative for various consumer companies in India and it may also affect government/public revenue.

On Thursday, Trump said at his presser on reciprocal tariffs:

·       I would love to have Russia back in the G7. It was a mistake to kick Russia out

·       We're going to make some wonderful trade deals for India

·       Trump Orders Reciprocal Tariffs, Will Also Respond To Value Added Taxes (VAT)

·       Tariffs have given US Steel a new lease on life

·       US Steel is going to be here

·       Trump repeats his threat to Brics of a 100% tariff

·       BRICS will be hit if they play with the dollar

·       I want to tell China’s President Xi and Putin, let's cut the military budget in half

·       There's no reason to build nuclear weapons

·       I had been talking about denuclearizing and we are going to do it

·       I will meet with China’s Xi at some point

·       I think we'll raise a staggering amount from tariffs

·       Trump signs sweeping reciprocal tariff plan, says more coming

·       US Steel stock is through the roof

·       I do believe Putin wants peace

·       Taiwan took our chip business away

·       Auto tariffs may come same time as other sectoral duties

·       No exemptions on autos needed with reciprocal tariffs

·       Defense Secretary Hegseth's comments on Ukraine not joining NATO were accurate

·       I wanted to make sure Putin wanted to do a deal

·       War in Ukraine has to end

·       Ukraine would have a seat at the table in any peace negotiations, along with Russia.

·       Expect a lot of countries' tariffs to stay the same. I don't expect any exemptions or waivers.

·       Canada pays the lowest for NATO

·       The EU doesn’t treat the US right on trade

·       Canada doesn't have enough military protection.

·       Canada has been tough on the military and not paying enough

·       Trump announces reciprocal tariffs: Could begin to impose some tariffs "within weeks”

·       Trump expressed support for the call for a European peacekeeping force in Zelensky's call

·       The EU has 20% VAT and also has other measures that hurt US companies including Apple

·       US Trade Secretary Lutnick: Trump could start the reciprocal plan by April 2

·       Lutnick: Studies all complete by April 1

·       Tariffs on autos coming soon and stacked over reciprocal

·       Interest rates are going to be going down

·       I expect jobs to go up, prices could go up somewhat short-term

·       Asked if consumers can expect higher prices: Not necessarily

·       India has more tariffs than nearly any other country

·       US Official: Trump is happy to lower tariffs if countries want to

·       Tariffs to address subsidies and currency manipulation

·       We don't rule out one-size-fits-all flat tariff

·       Chips and pharma will also be over and above

·       Trump focus on non-monetary and non-tariff barriers

·       These (Reciprocal tariffs) will be over and above steel tariffs as cars and pharmaceuticals

·       Car tariffs will be over and above reciprocal tariffs, and coming shortly

·       Steel and aluminum are over and above this

·       US Trade Rep. Greer: We’re going to look at everything including fake antitrust regimes

·       Lutnick: Canada and Mexico are pathways for goods from India and China

·       Lutnick: Trump talked about that With Canada and Mexico

·       Lutnick: The US will address each country, one by one

·       Lutnick: VATS is a sort of an export subsidy

·       Trump Asked treasury, and commerce chiefs to work on reciprocity

·       We want to level the playing field for all US companies

·       EU lowered the tariff to 2.5%. that's a big win

·       No tariffs if manufacture or build products in the US

·       Trump expects some countries to reduce, or terminate their tariffs

·       Other countries can reduce tariffs or eliminate

·       Lutnick will be working on a reciprocal plan

·       Lutnick will come up with numbers equivalent to those limitations and other non-tariff barriers.

·       Provisions will be made for non-monetary tariffs

·       They’re charging us vastly more than we charge them

·       We're going to call it a tariff

·       VAT tax will be viewed as a tariff

·       We'll consider countries that use the VAT tax system

·       Whatever they charge us, we will charge them

·       I have decided to charge a reciprocal tariff

·       The Federal Government loses billions a year in fraud

·       Trump memo on reciprocal tariffs to mention Brazil ethanol tariffs

·       Trump: Today is the big one - reciprocal tariffs

The US President Trump has announced plans for implementing reciprocal tariffs on almost all U.S. trading partners. On 14thFeb’25, Trump signed a presidential memorandum to initiate a plan for "fair and reciprocal" tariffs. This involves ordering a comprehensive study by his administration to assess how the U.S. can match tariffs imposed by other countries on American goods. The Reciprocal tariffs plan directs Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer to evaluate within 180 days whether "remedies" are needed for reciprocal trade relations. This includes looking at both tariffs and non-tariff barriers like value-added taxes, which Trump has criticized as being more punitive than tariffs.

The reciprocal tariff policy would affect all major U.S. trading partners, including allies, to balance trade by ensuring that the U.S. charges tariffs equivalent to those imposed on U.S. exports by other countries. Reports suggest that the studies for these reciprocal tariffs are set to be completed by April 1, 2025, paving the way for potential tariff adjustments soon after. There's significant concern about the economic implications, including potential increases in prices. The policy might lead to higher consumer prices but is intended to reduce the U.S. trade deficit and increase government revenue.

The move has raised fears of a global trade war, as other nations might retaliate with their tariffs. Countries like India have been specifically highlighted due to their high tariffs on U.S. goods. The implementation of these tariffs could reshape U.S. trade relations, aiming for what Trump describes as fairness in trade practices, but it also introduces complexities and potential conflicts with global trade norms.

Conclusions:

Overall, Trump trade war policies may add around 0.7% higher inflation/prices for the US and $1200 additional cost of living for US households if implemented at face value as the US has no domestic manufacturing infra to match with a present lower cost of imported goods. Like in Trump 1.0, this time also Trump will collect indirect tax (import duties/tariffs) from US consumers/importers on one hand and provide some income tax cut on the other hand.

Deal maker Trump is already using tariffs threat as a tool to get concessions in not only trade deals but also various diplomatic and geo-political issues. Trump may also make some trade deals with the affected countries for his metal and reciprocal tariffs.

And Trump may not launch another all-out trade war with China, the 2nd largest economy in the world. Trump will maintain friendly competitive relations with China for mutual benefit. Trump will also keep good trading and diplomatic relations with ‘Tariff King’ India, Canada, Mexico, and the EU. Businessman/developer Trump is already making it clear that the US will control Ukraine’s rare earth reserve and Gaza strip instead of the huge funding assistance to Ukraine and Israel. Trump will also ensure the reconstruction of Gaza and Ukraine by US developers.

Trump's policy uncertainty may be a big headwind not only for Wall Street but also for Real Street. But Trump tariffs may force India to curtail wasteful public expenditure as it has to reduce tariffs and GST/ED/other indirect taxes on both local and global goods; also Indian producers will have to improve efficiencies to match with global competition in terms of quality, quantity, and also pricing. But for this Government of India will have to also ensure proper policy and input costs and also to reform the country’s present political funding system for ease of doing business in India. Thus Trump's tariff policy may be an opportunity for India to reform itself. Also, Trump/US plan to build China like BRI from Asia to Europe partnering with India may be good, but India also needs to invest hugely in its crumbling infra amid a population burst.

Bottom line:

Trump can’t promote US inefficiencies by simply imposing tariffs; Trump has to develop China's manufacturing and logistic infra to compete with China, not by imposing tariffs. Currently, it’s very tough for the US or India to develop China like manufacturing and logistic infra to compete with China; it will take substantial time like 25 years. Meanwhile, Trump's trade war policy, if implemented at face value, may lead to a synchronized global trade war and economic slowdown. Despite rhetorics, US importing agencies or entities are paying tariffs, not China or any other exporting agencies.

Market impact:

On Thursday, Wall Street gained on hopes that a less hawkish Trump tariff policy may help to ease inflation and trade worries, despite hotter-than-expected PPI and CPI inflation data. The S&P 500 climbed 1%, the Nasdaq 100 gained 1.4%, and the Dow rose 343 points (0.7%). India’s export-heavy Nifty stumbled on Trump’s reciprocal tariffs plan, but the German Dax continues to surge making a new life time high on hopes of the US-EU trade deal as the EU now reducing tariffs on US goods like cars to 2.5% to match with US tariffs. Gold again surged from the $2900 to $2940 life time high zone on Trump’s tariff delays and a US Pentagon report, indicating Israel may strike Iranian nuclear facilities in the coming days. Also, the fragility of the Gaza war ceasefire is helping gold.

Weekly-Technical trading levels: DJ-30, NQ-100, Dax-40 and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 44650) now has to sustain over 45300-45500 any further rally; otherwise sustaining below 45200, DJ-30 may again fall to 44500/44100-43700/43300 and 42800/41900 and further 41200/40600-40400/40000 in the coming days.

Similarly, NQ-100 Future (21900) has to sustain over 22200-22300 for a further rally to 22500/22700-23000/23300 in the coming days; otherwise, sustaining below 22100, NQ-100 may again fall to 21700/21300-21100/20700 and further 20500/20300-20100/19250 in the coming days.

Technically, Germany’s Dax-40 now has to sustain over 23000 for a further rally; otherwise sustaining below 22900-22700, may again fall to 21800-21200 in the coming days.

Also, technically Gold (CMP: 2900) has to sustain over 2850 for a further rally to 2875/2895-2905/2930 and 2950/2975-3000/3025; otherwise sustaining below 2840-2825 may again fall to 2770/2755-2725/2690 and further 2675/2655-2610/2560 in the coming days.