So this was liberation day, there were plenty of people thinking Donald Trump was just talking big, he would back down at the last minute like he has bben known to do. So when the tariffs were formally announced, it did take many by surprise. This was thought to be a classic Trump hard sell and turn around. Not exactly a typical bait and switch tactic, but not a great negotiating tactic nonetheless.

As a result, the sharemarket tanked, the boom Trump has promised Americans was now closed down. Elon Musk was running riot with DOGE, the Department of Government Efficiency was firing government workers en masse, in some cases then rehiring them weeks later when they dawned on them that services would be shut down. This is a classic Elon Musk move, he pulled the same stunt at Twitter, now renamed and remarketed as X.

When the sharemarket tanked, the correction was large and investors were cutting losses and fleeing equities. There was concern all round, following the US lead, share markets around the world corrected with trillions of shareholder value destroyed. The markets were correcting firstly on fear, secondly on revised earnings based on tariff hits to earnings and profitability. I watched my retirement savings decline for no real reason, I am sure Americans watching their 401(k) decline were raising similar concerns.

Whilst this sharemarket was correcting, the bond market was also in turmoil. The bond market is viewed as less volatile than the sharemarket, considered a safe haven when equities are correcting. This was not the case here, investors were also fleeing the bond market as well, US government treasuries were being sold off too. US bonds have been viewed as the defacto bond, the standard that all other national bonds are priced against. Whilst borrowing costs are lower for US bonds, the riskier the nation, the higher the bond yields and subsequent repayment costs to governments. The US was raising its own borrowing costs and that of other nations.

So when Trump came out and stated “I thought that people were jumping a bit out of line … they were getting a little bit yippy, a little bit afraid” you know he had been told to address the issues and get this problem under control by his financial advisors. This failed tariff strategy was sending equity and bond markets down in unison. The United States has a number of economic ratified agreements in place with numerous nations, this is including a free trade agreement with Australia.

What this states, the message it sends is Trump is unwilling to honour previously negotiated and ratified free trade agreements, this is difficult to justify as the US/Australia free trade agreement offers a surplus to the US. Generally, Trump claims any trade with the US where a nation has a trade surplus with the US, then they are ripping them off. Here, the US has a trade imbalance with Australia when the US enjoys a trade surplus.

Typically, equity markets offer greater returns at greater risks, bond markets whilst offering a lower return is considered a safer option. So when equity markets soar, funds are transferred to the higher returns from equity markets. Likewise, when equity markets decline, we see fund inflows into the safer bond market. What we saw during the Trump Slump was equity market wealth destroyed and funds flowing out of bonds. This is a highly unusual situation that has everyone concerned.