As expected, investment markets around the world responded to yesterday’s announcement by President Trump that new tariffs would be levied against all products imported into the US. The reactions across equity markets have largely been negative as investors and others evaluate what will be the short and long-term impacts of this new era of global trade policy. 

Non-US markets declined less than US markets which may be an indication that the impact to local economies is less predictable, that their valuations were not as stretched as compared to US stocks, or that the weakening of the US dollar is helping non-US markets. While equities have declined throughout the day, fixed income markets in the US have been in positive territory with the exception of the high-yield sector. A flight to safety, portfolio de-risking, and increased likelihood of more rate cuts by the US Fed are all responses to the tariff announcement and the ensuing sell-off in equities.

The following is a summary of the announced tariffs: 

• President Trump announced what he calls “reciprocal tariffs” will be levied on virtually every nation the U.S. engages with in trade.

• Effective April 5th, all imports to the U.S. will be subject to a baseline tariff of 10%. Then, beginning April 9th, additional reciprocal tariffs will be placed on approximately 90 countries that the Trump administration says currently impose “unfair barriers” on imported U.S. goods. 

• Some countries will be charged tariffs that are could exceed 90%. China, which has been a target for Trump since his first administration will face additional tariffs that may result in an effective tariff rate of 65-70%. The European Union was targeted with a minimum 20% rate. 

• The additional tariffs on top of the base 10% rate are considered by some to be negotiable, meaning the administration may be looking to seek lower tariffs and fewer barriers on US exports in exchange for lower rates on US imports. It would appear that the administration intends to hold firm on the 10% base tariff rate. 

• Certain sectors were excluded from tariffs including steel, aluminum, select autos, copper, lumber, pharmaceuticals, semiconductors, and critical minerals. The exclusion also applies to energy products. These sectors are often subject to specific trade agreements and levies that are expected to remain in place. 

Key takeaways 

The announced tariffs were wider and deeper than the markets had feared, with China and the rest of Asia hit harder than other regions. The 10% tariffs are taking effect on April 5 so there is limited opportunity to negotiate these away. The delayed implementation of the additional tariffs may signal the administration is looking for quick and decisive responses that are favorable to the US.   

Stock markets around the world reacted negatively, more so than anticipated given the forewarnings sent by the administration. Many economists and macro forecasters are struggling to evaluate the immediate and long-term impact of this first and massive barrage in what has the potential to spark a global trade war. It clear that tariffs will have far reaching impacts. 

According to a Goldman Sachs analysis, the tariffs will negatively impact GDP growth over the next few quarters. Other economists have raised the likelihood of a recession in their forecasts, which in turn will negatively impact corporate earnings, which in turn would impact employment levels and consumer spending. This likely leads to the Fed potentially cutting interest rates faster than expected, which may add to the expected bump up in inflation that will come with the tariffs. 

Longer-term, the typical benefits of lower interest rates may not be as significant if inflation levels and unemployment move higher. All of this leads to the current negative equity market reactions and positive moves in safe haven bonds.   

Where do we go from here? 

Remain calm, let the dust settle. Today has been chaotic as the emotional instinct to sell overwhelmed the prospects for long-term gains. Given the executive order nature of the imposed tariffs (not codified into law by Congress) they can be easily removed/reduced with little to no partisan friction.

Moreover, given the punitive nature of the recently announced tariffs, the incentive for countries to reach unilateral trade deals has never been more significant despite early pronouncements by other countries that they will respond in kind. The US is the largest consumer of global products, so in theory, they hold the stronger position in trade negotiations.

While the economy is not in a recession nor are these tariffs proof positive that we will enter one, it is fair to expect that volatility will continue for a few months. One of the key initiatives of the Trump administrations is make permanent the earlier Trump tax cuts or at least extend them another ten years. How corporations respond on the near-term, including how they manage their labor base, will be a good indicator of what economic growth will look like into 2026.

It is important to note that the benefits of having a diversified portfolio invested in low or negatively correlated asset classes stand out in periods such as this. While equity sell-offs gather the headlines, the rest of a typical 60/40 or 60/30/10 portfolio have provided the ballast that investors need during these difficult periods. We have seen markets like this in the past, with a different catalyst each time (Covid, housing crisis, inflation, banking crisis) and we have seen markets rebound eventually.

As always, staying focused on your long-term investment goals is essential. If you have any questions or would like to discuss how current market trends might impact your investment strategy, don’t hesitate to reach out to your advisor—we’re here to help. 

Note: Economic data and forecast comments obtained from public sources including Bloomberg.com. Tariff information obtained from public sources including the Wall Street Journal.

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