Forget stocks, new tariff shock hits currencies, bonds hardest

A single country raising tariffs dents that country’s exporters. Sixty countries absorbing new US duties on the same day is a different animal entirely, and currency and bond markets have far more reason to be nervous about it than most equity investors currently seem to grasp.

The new rates land between 10% and 12.5%, and the split between those two bands is where this gets interesting. Japan and Switzerland, two of Washington’s most mature, longest-standing trading partners, landed in the tougher 12.5% tier.

Japanese auto and industrial machinery exporters now face a genuinely harder margin picture, and Swiss pharmaceutical and precision engineering firms sit right alongside them.

My eyes go straight to the yen and the franc here. Currency desks move on gaps like this long before earnings season catches up, because a 12.5% cost cannot hide quietly inside a stock chart forever.

Set that against the lower 10% tier, secured by Canada, Britain, the EU, Taiwan, Mexico and India, and tied specifically to forced-labour compliance commitments rather than anything resembling trade balances.

This distinction is the one investors should be sitting up for, because a rate built on a compliance pledge can swing in either direction the second that pledge gets reviewed. India’s textile and electronics-assembly exporters hold their edge today purely on that basis, and Mexican manufacturers wired into North American supply chains sit in a similarly exposed spot.

Taiwan earns its own paragraph here, given how much of the world’s semiconductor supply runs straight through it. Move Taiwan’s rate an inch and the shock doesn’t stay in Taipei. It rips through chip pricing and slams global tech portfolios within weeks, not months.

Another investigation is already running, this one into industrial overcapacity across 16 further economies, and I would treat that as a live fuse rather than a footnote.

On the bond side, the inflation arithmetic is brutally simple. A tariff is a tax by any other name, and slapping one across 60 economies at once pushes real upward pressure on prices at the exact moment several central banks were hoping to start cutting. Layer oil’s recent surge on top and duration positioned for a gentle rate path needs a hard, immediate rethink, not a passing mention in a quarterly note.

For currencies specifically, expect the yen, the franc and the Korean won to swing harder than usual over the coming weeks, while the Mexican peso and Indian rupee could hold up comparatively well for as long as their lower-tier status survives, which is far from guaranteed.

On the equity side, the mistake I keep seeing is treating geographic spread as a stand-in for real diversification. Two portfolios can hold completely different names and still carry identical exposure if those companies lean on the same manufacturing regions or shipping lanes now hit with new costs.

This week’s move has ripped that overlap wide open in a lot of books that looked perfectly fine on paper days ago.

Investors constantly ask whether it makes sense to wait for the picture to clear before acting. Waiting is a decision in itself, and in my experience it is almost always the costlier one, because investors who move this week end up ahead of a market still scrambling to catch up.

I’d take an investor mildly over-hedged for a quarter over one blindsided next earnings season by diversification that turned out to be built on where holdings are listed, not on where they actually manufacture and sell.

None of this behaves like a passing headwind anymore. It behaves like a fixed input into how portfolios get built, sitting right alongside interest rates and currency risk, not beneath them, and treating it as anything less permanent than that is the mistake being made across markets right now.