Equity Soar as Trump Plans Soften "Trade War" Stance - What Happened?

President-elect Donald Trump's aides are exploring tariff plans that would be applied to every country but only cover critical imports, according to three people familiar with the matter, as reported by the Washington Post. This marks a significant shift from his plans during the 2024 presidential campaign.

This represents a reduction from the 10% to 20% universal tariffs proposed during Trump's campaign. Economists had anticipated that such broad tariffs would increase consumer prices and distort global trade patterns. Investors have also increased their bets on the Fed rate cuts, speculating that the new plan would not exacerbate inflation as much as the previously proposed widespread tariffs.

In response to the news, the U.S. dollar index continued to decline, falling below 108 and dropping nearly 1% intraday. Spot gold turned positive, nearing the $2,650 mark. Non-U.S. currencies also rallied, with the British pound, euro, New Zealand dollar, and Australian dollar all rising more than 1% against the U.S. dollar. The U.S. dollar erased its intraday gains against the Japanese yen.

U.S. stock index futures extended their gains, with Nasdaq 100 futures rising about 1%. European stocks continued to rally, with France's CAC 40 index up more than 2% and the Euro Stoxx 50 index up 1.9%.

It remains unclear which industries or goods will be targeted by the tariffs, but they are expected to focus on areas deemed critical to the economy and national security. Discussions are centered on industries and goods that Trump aims to bring back to the United States.

One source stated, Industry-based universal tariffs are more acceptable to everyone, emphasizing the disruptive impact that broad tariffs could have on consumer prices and supply chains.

With approximately two weeks remaining until Trump's inauguration, the threats surrounding his tariff plans have already put pressure on the global trade system and created uncertainty around inflation and interest rate trajectories.