Trump’s ‘Big One’ on Tariffs Has Emerging Market on Edge

Emerging-market currencies dipped on Friday after Trump posted on Truth Social that April 2 would be “Liberation Day in America,” saying the US has been “ripped off and abused by every nation in the World, both friend and foe,” for decades. The currencies of Brazil, Thailand and Mexico led declines.

And with Europe and China now offering alternative investment avenues to the US, the bar for exiting even the highest-yielding emerging-market assets — such as those denominated in Turkish lira — is now lower.

For Indonesia, a big exporter of commodities to China, concerns about its fiscal health and the political longevity of well-respected Finance Minister Sri Mulyani Indrawati kindled a stock market rout this week. Then on Thursday, legislation expanding the role of the armed forces was met with angry public demonstrations.

Fears about democratic backsliding played a role in Turkey’s recent market meltdown as well. Authorities detained longtime President Recep Tayyip Erdogan’s top political rival on corruption charges on Wednesday, triggering a brutal selloff in stocks and the lira.

While that rout was an idiosyncratic case exacerbated by a “super crowded” trade and technical issues, the riskier backdrop has led to sharper moves, said Guillaume Tresca, global EM strategist at Generali Investments.

“The uncertainty related to tariffs and higher volatility could have led fast-money accounts to close more rapidly their TRY trades,” Tresca said. “It is a by-product of a more volatile and uncertain environment.”

In Colombia, the resignation of Finance Minister Diego Guevara after only three months in office stoked fears that the country was losing an advocate for fiscal responsibility. The currency tumbled on the news, propelling it to a weekly loss.

And in South Africa, investors are rapidly cutting exposure to local debt as Trump aims his sights on the country, first halting aid and then expelling its ambassador to Washington, based on unfounded claims that South Africa’s government is abetting the confiscation of land from White farmers.

“Trump’s tariff discussions impact more than just trade, they significantly influence global capital flows,” said Kristof Kruger, a fixed-income trader at Prescient Securities. “With increased market volatility, the rand and local bonds are vulnerable to sudden outflows.”

Few Havens

Tariff threats from the White House have also caused market dislocations in seemingly unaffected places. Poland’s zloty, the most traded currency in Eastern Europe, suffered its steepest drop against the euro in three months on Feb. 3 after Trump slapped — and later paused — tariffs on Mexico and Canada. Even worse was a one-day selloff two weeks later that followed his mention of levies on cars, drugs and chips.

The Hungarian forint has showed a similarly volatile pattern in reaction to Trump’s comments on trade policy, as well to his diplomatic efforts to secure a ceasefire in Ukraine.

While Southeast Asia — along with India and frontier markets — have been touted as havens for traders navigating US trade policy, the routs this week highlight the power of spillover effects and that it’s hard to single out where to hide.

Johanna Chua, head of emerging-market economics at Citigroup Global Markets, warns that there’s no clear end in sight.

“We’re still going to get more tariff noise after April 2,” she said. “There’s so much uncertainty.”

–With assistance from Philip Sanders, Tassia Sipahutar, Jing Li, James Mayger, Mpho Hlakudi, Andras Gergely, Peter Laca, Sujata Rao, Masaki Kondo and Nicolle Yapur.

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