Interestingly, the approach excluded the services sector, which for a developed economy like the U.S. would be a major source of ‘exports’ (as U.S. companies such as law firms, accountants, social media companies etc., make their services available to global customers). If the service sector was considered, many of these trade deficits would be somewhat lower as the U.S. runs a services trade surplus with most countries.

The strategy also led to some odd outcomes, including a tariff being imposed on a small Australian island inhabited only by penguins.  Regardless, the reciprocal tariffs marked the most dramatic escalations in U.S. import taxes in nearly a century. Unsurprisingly., the shock triggered a global stock and bond market shakedown which then swung wildly in the other direction as some tariffs were revised or postponed. Overall, markets saw turbulence levels similar to those of the 2008 global financial crisis, marked by sharp equity swings, abrupt policy reversals and fast-dwindling investor confidence.

Major emerging market economies such as India, China and Brazil were particularly affected. Brazil was slapped with a 10% tariff while China and India, labelled the “worst offenders”, faced significantly higher tariffs of 54% and 36% respectively. These measures created substantial volatility in emerging market bonds and currencies. In a partial reversal, Washington backtracked on its decision days later, reducing tariffs to 10% for most countries following Trump’s announcement of a 90-day pause. China, however, was treated differently as tariffs were raised to 145%, following retaliatory actions to Trump’s administration’s initial decision. By the end of the month, trade between the two countries had essentially ground to a halt, with tariffs rendering goods uncompetitive.

In April, China’s manufacturing activity fell sharply to a near two-year low as the impact of the trade war became more pronounced. The emerging giant’s official purchasing managers’ index (PMI) undershot expectations, slipping back into a contractionary phase, from March’s reading of 50.5. Meanwhile, the number of cargo-carrying container ships departing from China to the U.S. fell significantly over the month. As a result, one of the most notable drops in the month was in new Chinese export orders, which fell to 44.7 from 49.0. Employment also fell across the board, with the exception of the services sector, which saw a slight improvement from March albeit remaining in contraction at 46.8.

India adopted a different strategy from China, offering to roll back tariffs and non-tariff barriers in exchange for favourable treatment from the US. New Delhi is also pursuing a bilateral trade agreement with the U.S. in an effort to diversify and expand its export markets. This follows the Indian government’s March decision to lower tariffs on luxury goods such as Harley-Davidson motorcycles and Bourbon whiskey. Additionally, effective 1 April, India scrapped a 6% levy on online advertisements placed with foreign tech firms like Google as part of its broader effort to strengthen trade ties with the U.S.

Despite these efforts, India was not spared from the broader wave of market volatility. In early April, the Indian stock market lost approximately $170 billion in value, as the Nifty 50 and Sensex indices tumbled, echoing the global sell-off driven by investor concerns over a potential global economic downturn. Although markets later rebounded, the month’s developments introduced new uncertainty around the global economic outlook, affecting both growth and inflation expectations.

Emerging market equities managed to finish the month in positive territory, with the MSCI Emerging Markets Equity Index up by a modest 1.3%, outperforming relative to developed market peers. Brazil contributed positively while Chinese equities fell, with the MSCI China and MSCI China A Onshore indices down 4.3% and 3.4%, respectively, weighing on performance.

Emerging market assets continue to show resilience as they are still outperforming developed markets for the year-to-date, despite the current levels of volatility. This is largely due to a mixture of improving economic fundamentals, favourable technical factors and attractive relative valuations. The long-held belief among investors of U.S. ‘exceptionalism’ – the idea that the U.S. has access to skills, capital and consumers far better than anywhere else, which has driven valuations of U.S. megacaps to quite extraordinary levels – has taken a significant knock. While many strong U.S. companies remain, investors are now broadening their search for opportunities, which is where the attractive pricing of emerging markets puts them in pole position as both diversifiers and return generating assets.

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