Markets ignore tariff increases: why?

A global stock market sell-off started to ease on Friday despite the U.S. fulfilling a promise to ramp up tariffs on Chinese goods. The U.S. hiked tariffs from 10% to 25% on $200 billion worth of Chinese goods at 12:01 a.m. ET Friday. In response, Beijing said it “deeply regrets” the tariff hike and would take countermeasures — though no specifics were provided.

Markets across the globe initially fell overnight but were quick to bounce back and trade higher. In Asia, mainland Chinese stocks jumped with the Shanghai composite rising more than 3%. In Europe, the pan-European Stoxx 600 traded nearly 1% higher in early deals with the German DAX up by the same amount. Stateside, Dow futures initially slipped and pointed to nearly triple-digit losses at the open, but soon recovered.

Global stock markets have seen heavy selling this week as the tension between Washington and Beijing escalated. The Dow Jones Industrial Average has fallen more than 650 points this week, while the S&P 500 has lost about 2.5%. Global equities have seen outflows of $20.5 billion in the past week, according to new research by Bank of America Merrill Lynch said on Friday.

The recovery could also be due to markets already pricing in the tariff hike. The announcement on the increase initially came from Trump on Sunday, giving investors plenty of time to position assets in their portfolios. In addition to that, a number of analysts have also pointed out that the increase in tariffs from 10% to 25% will only really take effect in a few weeks and hence markets are anticipating a deal will come before that.