Early Morning Financial News Breakdown: Trade Wars and Market Volatility

Welcome to the early morning financial news breakdown. Today is Wednesday, April 9th, 2025, and it's 8:32 AM in Taipei. I'm Yu Ting-hao, and we'll be here for the next half hour to analyze international financial news and market shifts together.

Impact of US-China Trade Tensions

The implementation of reciprocal tariffs by the United States is set to take effect tonight. Initial market hopes for a trade agreement have faded following the US's imposition of 100% retaliatory tariffs on China.

• Market Reversal: Yesterday saw a near-instantaneous reversal of fortune in the markets after an epic rally.
• Dow Jones Volatility: The Dow Jones Industrial Average initially surged by 1,461 points (3.85%) but closed down 320 points, marking the largest single-day reversal since April 2020.
• S&P 500 Fluctuations: The S&P 500 also experienced a dramatic swing, initially rising by 4.05% before completely reversing and closing 1.6% lower, the most significant reversal since 1978.

This indicates that short positions were covered within a single day, followed by a continued downward trend. The pullback is substantial, leaving little room for immediate rebounds.

VIX Index and Market Sentiment

The VIX, or fear index, remains elevated between 50 and 60. This level of fear has been seen in the past during events like:

• The Yen carry trade unwinding of July-August of last year.
• The 2020 COVID-19 pandemic.
• The 2018 US-China trade war.
• The 2015 Shanghai stock market crash.
• The 2008 financial crisis.

This suggests that market sentiment is reflecting a potential externally-driven recessionary restart, similar to the 2020 COVID-19 pandemic.

US Trade Negotiations and Potential Agreements

The current decline in US stock markets and the significant market pressure calls for close observation. With representatives from 70 countries currently negotiating with the White House, the possibility of the US reaching agreements with East Asian nations, especially Japan, is being considered. The key for investors during this volatile period is survival and avoiding premature exits.

Short-term vs. Long-term Strategies

Long-term investors anticipating a rebound may seek to capitalize on market swings, but these markets involve large swings with big ups and downs. The current market sentiment is overwhelmingly negative, leaving little room for the market to breathe. The CNN Fear & Greed Index reflects this, with pessimism persisting for nearly two months.

The Need for Caution

Even long-term investors should consider waiting for a less pessimistic period before exiting unfavorable positions. Alternatively, short-term investors should aim to seize any rebound opportunities. The key question is whether the reciprocal tariffs have fundamentally disrupted the current economic cycle, or if the focus has shifted completely away from the underlying economic data and has been moved to pure liquidity panic.

White House's Stance and Global Responses

White House Press Secretary, Lee Vuitton, said that agreements would be tailor-made for each country. This implies that it will take some time. The sheer number of countries involved makes it unlikely that formal agreements will be reached before April 9th.

Global Responses to Tariffs

Various countries are adopting a more conciliatory approach in response to the tariffs:

• European Union: While potentially considering retaliatory measures, the EU has proposed significant negotiations and sent representatives to the White House.
• Mexico: Has ceased retaliatory tariffs and measures due to the USMCA trade agreement, experiencing the least impact in global commodity markets.
• Canada: is now very wealthy, and has not taken action.
• Japan, Vietnam, South Korea, Taiwan, India, and the UK: Are all attempting to negotiate.

The Time Factor

Time is the crucial variable in this trade contest. The United States aims to leverage rapid, high-pressure policies to force concessions before countries can coordinate effective responses. Delaying negotiations could prompt economies to form non-US blocs, potentially weakening the US position.

Trump's Mixed Signals and Trade Deficits

President Trump's communications are currently contradictory. On one hand, there is no time for a trade agreement to be rolled out by April 9th. On the other hand, recent tweets suggest the possibility of a positive agreement with South Korea. He also mentioned China wanting an agreement, but being unsure of how to start negotiations, which then led to the 100% tariffs being applied.

Potential Resolutions

Conversations with South Korea, Japan, and Taiwan likely involve addressing significant and unsustainable trade deficits. The U.S. aims to reduce trade deficits through traditional trade, U.S. liquified natural gas purchases, and joint ventures like the Alaskan pipeline project.

Alaskan Natural Gas Project

Speculation from the US and Japanese markets, now being reported by news outlets, center on the Alaskan natural gas pipeline investment. This project, costing an estimated \$44 billion (equivalent to one to two TSMC factories), is not yet fully finalized. While the strategic benefits of energy independence and defense are significant, including faster shipping times to Japan, South Korea, and Taiwan, Alaskan natural gas prices are projected to be higher than those from Qatar and Australia.

This could potentially lead to increased natural gas prices in Taiwan, especially given the reliance on cheaper Australian imports.

White House's Five Demands

White House Economic Advisor Chairman Miller outlined five ways nations can share responsibility with the U.S. and encouraged them to contact the White House:

1. Accept US tariffs without retaliating: Japan, South Korea, and Taiwan have complied.
2. Open domestic markets and cease unfair trade practices: Taiwan has complied.
3. Increase defense spending: Taiwan has complied.
4. Invest in the US and establish factories: Taiwan (TSMC) has complied.
5. Directly donate to the US Treasury:

All but one requirement (the donation) has been met by some countries.

The Implications

Despite meeting most of these demands, there has been no corresponding goodwill from the U.S. This approach can be perceived as exploitative, highlighting the difficult position faced by East Asian countries. In contrast, the EU is taking a more measured and flexible stance, demonstrating that being the first to negotiate may not necessarily guarantee advantages.

Impact of Tariffs on US Stock Market and Supply Chains

The 100% retaliatory tariffs on China have had a notable impact, triggering significant declines in US stock markets. The recent enforcement of the 104% cumulative tariff rate on China by the White House has added to the pressure.

Chinese Countermeasures

In response to the tariffs, China has imposed export controls on rare earth minerals, crucial components in the semiconductor manufacturing chain. These measures include import quotas, with exports requiring proof of use in semiconductor manufacturing or consumer electronics, and investigations into attempts to divert these materials for US defense purposes.

Increasing Tensions

Tensions between the US and China have heightened, with rhetoric and actions intensifying. This dynamic creates a "chicken game" scenario, where neither side wants to back down due to domestic pressures.

Shifting Production Costs

While previous tariffs of 20-30% led to supply chain shifts to Southeast Asia, current tariffs are much higher. With tariffs on both China and Southeast Asia rising, any remaining advantages of production in Southeast Asia have been diminished. For Chinese manufacturers to remain competitive with a 100% tariff, they would need to effectively double their profit margins.

Impact of Trade Tariffs on Consumption

The increase of American-imposed tariffs on China may have a larger impact on the American consumer. Most exports from China consist of cell phones, computers, batteries, toys, and furniture. However, the increase of Chinese tariffs on America may have a larger impact on the business sector. Many of America's exports to China consist of soybeans, raw materials, natural gas, and raw oil.

Legal Basis for Tariffs

The rapid pace of tariff imposition is rooted in the legal basis: the International Emergency Economic Powers Act (IEEPA), which allows tariffs to be imposed without Congressional or International Trade Commission review, based on the President's assessment of national security threats.

The Impact

• Steel: 100%
• Automobiles: 75%
• Construction Materials: 75%
• Defense, food, beverages, and machinery: Roughly 60%

This has resulted in increased market aversion and a surge of selling pressure.

Market Performance

• Dow Jones Industrial Average: Down 320 points (0.80%) to 37,645
• S&P 500: Down 79 points (1.57%) to 4,982
• NASDAQ: Down 355 points (2.15%) to 15,267
• Philadelphia Semiconductor Index (SOX): Down 132 points (3.57%) to 3,562

Apple's stock price experienced a significant decline of 4.98%, outperforming the overall market decline, mainly due to the tariff announcement. The limited quantity of iPhones shipped before the tariff deadline is also expected to impact sales. This also means that Apple will have less supply chain pressure, as iPhones are set to sell out again.

Market and Economic Impact

President Trump's policies increase market uncertainty, leading to a halt in long-term investment plans by corporate executives. The instability has also contributed to the collapse of oil prices, driven by both increased production and concerns about declining demand due to a projected economic contraction.

Widespread Liquidity Risk

The market is showing signs of widespread liquidity risk, with increasing pressure to redeem assets quickly to cover stock positions.

Double-Barreled Market Conditions

The market is volatile and susceptible to sudden shifts. The extreme volatility will lead to investors being burned, whether they are trading shorts or longs.

Investment Strategies

Avoid greed and focus on capital management. Consider focusing on the overall trend and economic cycle rather than attempting to predict every fluctuation.

Taiwan Stock Market and the National Stabilization Fund

The Taiwan stock market has avoided total collapse thanks to system orders and no major foreign investor dumping. The volume rose 4 times, but did not have enough momentum to have been considered overbought. The investor base has shrunk, as well. This means that fewer people are putting money into the stock market on borrowed money. Historically, the investor margin shrinks by 130%, which indicates a bear market.

History of Taiwan's National Stabilization Fund

The National Stabilization Fund has been relatively successful. 7/8 interventions have been successful. The current problem is that the National Stabilization Fund is operating during an economic boom, as the economic indicator is still yellow/red, the indicator is still relatively warm. Generally, the National Stabilization Fund intervenes during a downturn. The best case is waiting until the economic indicator is blue.

Past Interventions

The most recent intervention was in 2022 because of the high Federal Reserve interest rates. Not much money was injected into the National Stabilization Fund. The market decline was around 25%. As the economic downturn subsided, the National Stabilization Fund was able to capitalize. Another intervention was in 2020, which was related to the pandemic. The market decline was around 30%.

Key Considerations

• Evaluate incoming Q1 financial reports to measure performance.
• Follow the economic cycle, and not predictions.
• Determine your handiness, and invest with your other hand.
• Slow down investing and use an economic indicator before proceeding.
• The National Stabilization Fund will purchase real estate, finances, TSMC, etc.
• Is this a potential restart to Taiwan's economy?

Taiwan's economic data is looking extremely well because American companies are placing orders. The manufacturing indexes are booming. As a right-handed person, use your left-hand. Buy slowly!

Conclusion

The situation in Taiwan is a consequence of ongoing trade negotiations between the US and other Asian countries. US-imposed tariffs are causing more uncertainty. All signs point to more volatility in the near future.