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US TARIFFS COULD REDUCE GLOBAL TRADE BY 5%, WORLD GDP BY 1%

Markets have been subject to wild gyrations since U.S. President Donald Trump's April 2 "liberation day" event, at which he announced punishing tariffs on United States' trading partners, suspended those tariffs one week later, and the tit-for-tat escalation in the trade war against China.

Oxford Economics (OE) has published a note which aims to cut through the fog of the tariff war and shed some light on U.S. trade policy.

Adam Slater, lead economist at the economics advisory firm says "We estimate that the trade-weighted U.S. average tariff will rise to over 20% of import values this year from 2.5% in 2024," mostly due to exorbitant levies against China.

But even removing China from the picture, the United States will have unwound its post-war tariff reductions, Slater writes.

OE offers preliminary estimates that suggest U.S. non-fuel imports will plummet by 17%. And by the time the dust clears, total world trade will have dropped by 5%, which would be "comparable to the drops in 2020 during the pandemic and the global recession of 1975," the note says.

A 5% drop in world trade would translate to a 1% decline in global GDP, compared with OE's baseline, according to Slater.

Even so, the game is still in progress and the ball is in play.

Slater notes that retaliation from U.S. trade partners "could magnify the impact."

But on a positive note, late Friday the White House announced tariff exemptions for smartphones, computers and other electronics, largely imported from China, much to the relief of more than a few big tech firms, notably Apple AAPL.O.

A separate note from Morgan Stanley calls this most recent development "material," and estimates it covers about 10% of U.S. imports.

In light of these exclusions, Morgan Stanley's research team headed by senior global economist Rajeev Sibal sees the weighted average tariff rate at about 18%, down from 23% prior to the announcement.

Sibal points out that the exemptions of these items "most critically mollify tariffs on China, they also ease tariffs on Taiwan, Vietnam, Malaysia and other Asian economies, though have little impact on the European Union or other non-Asian trading partners."

Even so, OE's Slater isn't exactly planting a victory garden.

"We are skeptical that there will be any winners from the U.S. tariff increases," he writes.

(Stephen Culp)

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FOR MONDAY'S EARLIER LIVE MARKETS POSTS:

U.S. STOCKS RALLY OUT OF THE GATE AS TECH GAINS ON TARIFF REPRIEVE - CLICK HERE

S&P 500 INDEX POISED TO BOUNCE, BUT DEATH CROSS LOOMS - CLICK HERE

DOLLAR WEAKNESS CATCHES SOME OFF GUARD - CLICK HERE

ARE WE OUT OF THE WOODS? - CLICK HERE

EUROPEAN SOFTWARE: A SECTOR IN LIMBO - CLICK HERE

BROAD GAINS LIFT THE STOXX - CLICK HERE

BEFORE THE BELL: TECH CHARGES UP, LVMH KICKS OFF EARNINGS - CLICK HERE

DOING THE TARIFF TWO-STEP - CLICK HERE