Rounding up the Effect of Tariffs on Financial Markets: Evidence from April 2, 2025

We measure the response of financial outcomes to the US announcement on April 2, 2025, of tariffs on nearly all its trading partners. To address the challenge posed by potential anticipation by economic agents, we decompose these tariffs into a component associated with bilateral deficits and an arguably unanticipated component resulting from the rounding up of the continuous deficit measure to the next whole number or to the baseline 10% rate. We measure the short-term response of stock prices and exchange rates, focusing on all countries with which the US has a bilateral deficit. For both outcomes, the round-up component’s effect is an order of magnitude larger than that of the deficit component. We find that a one percentage point higher tariff is associated with a statistically significant 0.23% decline in stock prices. Further, we find no evidence of a dollar appreciation; if anything, higher tariffs are associated with a dollar depreciation, driven by countries with a floating regime. We show this is consistent with a model that allows for trade reallocation and in which exports to the US are invoiced in dollars while exports to the rest of the world are partly invoiced in producer currency.