Meanwhile, China is holding high-level meetings in response to US tariffs, aiming to launch measures to boost domestic consumption and stabilise the capital markets.

US President Donald Trump authorised a 90-day pause on tariffs following a strong US$39 billion treasury auction that supported the Treasury market.

This results in a substantially lower reciprocal tariff rate. Countries previously subjected to higher reciprocal levies will now be taxed at the 10% baseline rate during this period. China is the exception, with tariffs raised to 125%.

With the 90-day pause, the average tariff rate will now be 25%. This window opens the door for negotiations between the US and affected nations, says Ray Sharma-Ong, head of multi-asset investment solutions, Southeast Asia, at Aberdeen Investments. 

“The combination of the pause and Trump's comment that he doesn’t foresee higher tariffs on China for now provides short-term relief for equity markets,” he adds in an April 10 note. 

Trump mentioned that he is monitoring the treasury bond market closely, with a focus on lowering yields to enable the US to refinance its debt at a lower rate, a core objective since he took office in January. 

While these are positive developments, several key risks remain, says Sharma-Ong. 

Firstly, companies may struggle to react, invest and grow meaningfully due to this sudden policy shift, with uncertainty about the form or results of deals reached within the 90-day window. 

This will make it difficult for the market to price in potential earnings till there is clarity on this, he adds. 

Secondly, consumers will bear the brunt of the increased net tariff rate, which will rise further after the 90-day period. This will affect demand, economic growth and inflation, says Sharma-Ong. 

Thirdly, US-China tensions could escalate further, warns Sharma-Ong. US Treasury Secretary Scott Bessent indicated that the administration plans to reach deals with allies before approaching China as a group. 

According to Sharma-Ong, this signals potential penalties for those who try to work with China independently.

Given the developing situation, Sharma-Ong’s preference is to focus on Japan and India within Asia. “They have not been as affected by the tariff hike as the other nations, are willing to negotiate and stand to benefit from any trade-related reallocation plans away from China.”

China coordinates response

Meanwhile, China is holding high-level meetings in response to US tariffs, aiming to launch measures to boost domestic consumption and stabilise the capital markets.

Sharma-Ong expects a combination of fiscal and monetary measures to be announced, such as Reserve Requirement Ratio (RRR) cuts. This refers to the amount of cash financial institutions are required to hold as reserves with the People’s Bank of China (PBOC).

The PBOC could also restart bond purchases, and the Chinese government may provide stock market support, writes Sharma-Ong. “An increase to the stock market stabilisation fund, and further consumption boosts such as birth/child subsidy are likely as well.”

Given that the Chinese government just approved annual bond quotas in March, it may not announce fresh fiscal funding, says Sharma-Ong. “However, we expect the government to emphasise [the] acceleration of issuance.”