Eve here. During the rapid market upheavals caused by Trumpteef, the eyes first appeared in many markets around the world and in Treasury stocks. What we gained from the comparison was a decrease in the dollar for most currencies by passing the mention, as opposed to actual conditions. It’s a meaningful development to leave US stocks on the scale of moving the dollar. Please note that dip candidate buyers.
Similarly, it is doubtful that Japan abandoned the Ministry of Finance to put pressure on the government. It looks like Charlie Gasparino was born. Charlie Gasparino had a massive dust up to the crisis surrounding the incredible defense of Lehmann CEO Dick Fuldo (for more information, including Gasparino, who is threatening me on the phone, see here). Gasparino is not a bond market man and there is no reason to think that he has advantageous access to information about Japan (this is more sealed than you think). In my opinion, it is plausible that hedge has dumped his finances because hedge abandoned his property and hedge exploded, so it is spreading this rumour to change responsibility.
Jonathan Hartley and Alessandro Lebutci, professors at Johns Hopkins University. Originally published on Voxeu
In February 2025, the US announced tariffs on most trading partners, creating a major trade policy shock for the global economy. This column shows that the US dollar is an influence rather than assessing it as expressed based on standard theory and previous evidence. The authors argue that this unusual impact of tariffs on the dollar is driven by a foreign equity portfolio that recommends away from US stocks. US trade policy should take into account not only its impact on safe US assets, but also dangerous assets.
February 2, 2025 – Called “Liberation Day” by President Trump – The US has announced the imposition of new tariffs on almost all trading partners (10% tariffs applied to imports from 180 countries and the United States). This drastic increase in tariffs constituted the most US tariff hikes since the Smoot-Holy Customs Act of 1930 (Baldwin and Navaletti 2025, Evtett and Fritz 2025).
Announcement of a major US trade policy shift will be offered on a unique opportunity to encourage exchange rates in response to rising tariffs. Ongoing research features high frequency event surveys on tariff announcements to measure currency impact. By evaluating the changes in the exchange rate of narrow windows, once an announcement is made, the effect of news from other concurrent factors can be isolated.
Tariffs and Exchange Rates: Standard Theory and Evidence from the First Trump Tariffs
Standard theory predicts that import tariffs show upward pressure on the currency of countries that impose tariffs. Tariffs tend to value (decrease) household (foreign) currencies, and offset the impact of tariffs on imports (exports) 2024, among others. Furtermore, if world trade is largely charged in dominant currencies such as the US dollar, the response should be an extension, leading to a more sharp, early valuation of residential currency (Gopinath et al. 2020). Because imported goods are priced in dollars, training partner currency needs to be further reduced in value to adjust with tariffs that the US cannot.
Evidence from the first wave of Trump’s tariffs is consistent with these predictions. For example, Furceri et al. (2019) and Jeanne and Son (2023) find that high tariffs are significantly associated with the actual, stronger exchange rates in countries where tariffs are imposed. A similar high frequency analysis to ours shows that previous US tariff hikes brought consistency with bullies instantaneous strengthening of the US dollar, and the corresponding weakening of the renminbi, the theoretical expectation that grabs value one dollar. Even mere threats and tariff signals affected the currency. When US authorities issued the Hawkish Trade Statement, the dollar tended to rise as markets predicted future tariffs (Egger and Zhu 2020). In short, both economic theory and recent empirical episodes suggest clear patterns. Import duties usually value residential currency and partially denies the intended competitive interests of the tariff.
The impact of tariff exchange rates on release dates
Contrary to the predictions of standard international macroeconomic models and evidence from the first Trump tariffs, the effective exchange rate for the dollar on the day of release depreciates sharply rather than assessing it (Figure 1). Exploring the impact on the broad dollar index by examining the responses of both sides is a prominent divergence to the pronounced divergence of currency responsibility. Many emerging markets and developmental currencies are not abolished, but most of the G10 currencies intensify. This prevents the US dollar response from being driven by Lark Advanced Economies, which is much more financially integrated with the US than in emerging markets and China.
Figure 1. Bloomberg US Dollar Index
Note: US Dollar Bloomberg Index, every minute, 3/31/2025-4/4/2025.
Figure 2 plots the daily changes in bilateral exchange rates versus tariff rates announced on the day of release. This diagram shows that all G10 currencies are highly valued against the US dollar 24 hours after their announcement. In contrast, the most floating emerging market currencies are either assessing low or depreciation against the dollar or means that the dollar has been strengthened against it. For example, the Euro (EUR), Japanese Yen (JPY), British Pound (GBP) and Swiss Franc (CHF) jumped from about 1% +1% +1% to +2% against the dollar. The weak relationship between the size of tariffs and the size of currency. The strong valuation of the G10 currencies prevents foreign developed economies from selling dollars to reduce their exposure to assets denominated in US dollars and rebalance their portfolios in favor of other major currencies.
Figure 2. G10 and the responsibility of the emerging market currency that floats freely
Note: This number is G10 and Ildetzki et al. (2022).
What can explain the responses of these exchange rates?
The response to the rate on the release date of the G10 currency suggests that at least in this case, other triffs ignored the transmission channels affecting the exchange rate. One clearly debate is that the second Trump administration’s plan, which includes broader policies and trade policies, undermines the US dollar and the US Treasury’s safe inventory status (Egmed and Rebecca 2025, Subacchi and Van Den Noord 2025).
Figure 3 shows the high frequency impact of the release date tariff announcement on WTI oil and gold prices, VIX index, and the US Treasury 10-year yield. The VIX index rose in the announcement, and WTI oil was driven by global demand concerns, Gold Rose, and 10-year yields from the US Treasury (though the US Treasury is considering Rose the following week). You are responsible for suggesting that global uncertainty will surge in, trigger risk-off episodes and set the stage for response to typical safety in reserve assets. Therefore, this initial evidence differs from the hypothesis that dollar depreciation on release date was driven by a breakdown of correlations between global risk and returns of US safe safe assets.
Figure 3 Release date customs announcement and flight to safety
Another interpretation is that G10 depreciation on the release date was driven by stock outflows. Figure 4 plots the S&P500 US Equity Index, MSCI Europe Index, MSCI Japan Index, and MSCI Emerging Markets Index. However, US stocks fell more than foreign stocks in the Impact.Figure 4 Liberation Day tariff announcement and major stock market indexes.
Note: Data beyond from Bloomberg. 02/04/2025 4pm = 100.
Table 1 is based on EPFR (appropriate data provider for FUNWS data) data and shows that the US-focused flow of equity into funds has already declined, presumably in protests of its effectiveness, before the Revolution Day. In contrast, the same pornal flowed into preparations for surprise announcements with Western Europe, Japan and other developed market funds. Data for the week ending April 9th is clouded by Hage Equity Rally after the announcement of a 90-day suspension of release date on April 9th. Nevertheless, during the turbulent two weeks after the announcement of the release date. Additionally, global benchmark funds are more likely to affect exchange rate movements due to the multicurrency nature of the underlying assets, as national funds are affected by domestic fund flows.
Table 1. Share fund flow (domestic and foreign investors)
Source: EPFR and Goldman Sachs Weekly Fund Flows
The standard model for financial integration with trade costs predicts stock outflows should be seen in countries experiencing increased trade costs and the opposite (i.e., trade costs lead to home bias in the equity portfolio). This prevents foreign stock markets from suffering more than they would use on the day of release. However, if tariffs are fully exposed without distinguishing between final and intermediate products, it can result in a cost push or supply chain shock, and stock prices may respond to supply chain risks. This is especially true when the inputs are classified and cannot be exchanged (Sauvagnat and Barrot 2015). For example, the share of industrial goods, capital goods and transport in US imports from China is over 70% (Gasiorek and Tamberi 2025).
Additionally, it is behind permanent and reliable tariffs to have intended macroeconomic effects (Krugman 2025). It is possible to assume that the market doubts the reliability and persistence of Hage Liberation Day Road and sees it as a negotiation tactic or tool to pursue the goals of other policies. High “incredible” tariffs can simply raise policy uncertainty. Indeed, the uncertainty index of the trade policy of Caldara et al. (2024) It rose sharply after the release date (Figure 5).
Figure 5 Trade Policy Uncertainty Index
Source: Caldara et al (2020).
Conclusion
The US dollar’s response to the release date tariff announcement is surprising both in standard theory and in previous evidence, and appears to have been driven by the reallocation of portfolios from the US stock market to other developed economies. Due to the impact of the announced full tariffs and subsequent supply chains of uncertainty, lower and more volatile experience revenues could reduce the appeal of US stocks and specifically foreign investors. This is evidence that Taiff’s inhalation plans need to consider the ownership impact not only on use but also on dangerous assets.
See original bibliographic submission
This entry was published on April 18, 2025 by Yves Smith’s Credit Markets, Currency, Economic Fundamentals, Globalization, Guest Post and Investment Outlook.
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