Executive Summary

Current Situation:

• The U.S. has announced reciprocal tariffs on various countries. (1) 10% across the board, (2) additional tariffs on specific countries.
• A 90-day grace period was announced on April 9 for countries other than China regarding (2). Negotiations with the U.S. on tariff reductions will follow.

Impact on National Economies:

• The U.S. will experience cost-push inflation. Neighboring countries will be directly affected by reduced exports to the U.S., increased policy uncertainty, and negative wealth effects.
• A 24% reciprocal tariff rate was proposed to Japan. Additional 25% tariffs on automobiles will continue even during the grace period. The impact on the real economy through exports will become apparent.
• Asian countries will be significantly affected, especially Vietnam and Cambodia, with high dependence on exports to the U.S. and high reciprocal tariff rates.
• Europe's main exports are pharmaceuticals and automobiles. Ireland, Denmark, and Belgium have high dependence on exports to the U.S.

Impact on Financial Markets:

• Initial reaction: Risk-off, falling stock prices, lower interest rates, and a weaker dollar. Subsequently, rising pressure on long-term U.S. interest rates may have prompted Trump's 90-day grace period decision.
• The impact on USD/JPY is mixed. Considering the direction of central banks in Japan and the U.S., along with fundamentals (Japan's shrinking trade surplus), the yen is likely to weaken in the long run.

Medium- and Long-Term Impact:

• Considering the impact of tariff measures on supply chains, the negative pressure on the global economy could reach -0.7pt. If countries respond with retaliatory tariffs, the impact could increase to -1.2pt.
• Reorganization of global supply chains and the advancement of economic blocs may lead to reduced economic efficiency and increased inflationary pressure.

Please refer to the PDF file for details including charts and tables.

Original in Japanese:
https://www.dlri.co.jp/report/macro/431720.html