Trump’s Tariffs – Market Update

What’s Happened This Week – Tariffs

Last week, United States (U.S.) President Donald Trump announced the implementation of significant new tariffs aimed at addressing what he describes as “unfair” trade practices and reducing the U.S. national trade deficit. The key components of this tariff policy include:
 
Baseline tariffs: A universal 10% tariff will be imposed on all imports into the U.S., effective from 5th April.

Individualised reciprocal higher tariffs: These higher tariffs target specific countries or trading blocs deemed to have particularly unfair trade practices, or those with which the U.S. has the largest trade deficits. For instance, imports from China will face a 34% tariff (bringing total levies on Chinese exports to the U.S. to over 60%), the European Union 20%, Japan 24%, and South Korea 25%. These country-specific tariffs are set to take effect on 9th April.

25% tariff on all imported automobiles: This previously announced measure is now in force.
 
The Trump administration has justified these tariffs as a direct response to unfairness in global trading partnerships. The individualised reciprocal higher tariffs have been calculated using a formula that factors in both the U.S. trade deficit with a country or trading bloc, and the amount it imports from them.

Global Reaction

Unsurprisingly, the announcements have elicited strong reactions worldwide. Major U.S. trading partners, including China (the world’s second-largest economy), have condemned the tariffs and are preparing retaliatory measures. China, for example, has announced retaliatory tariffs of 34% on U.S. imports, effective from 10th April.
 
A range of market participants are concerned this marks the beginning of a new global trade war, potentially leading to increased consumer prices and greater market volatility. There are also concerns that the tariffs could trigger stagflation — a combination of high inflation, slow or negative economic growth, and rising unemployment. The rapidly shifting policy environment also makes long-term forecasting more challenging, particularly given the potential for swift changes in response to foreign retaliation.

Impact on Global Markets

As markets digested Trump’s tariff announcement, volatility spiked globally. Major stock indices fell sharply on 3rd April, most notably in the U.S., where the tech-heavy Nasdaq dropped nearly 6% and the S&P 500 fell by 4.8%.
 
The technology sector was particularly affected, with companies such as Apple and Amazon seeing substantial declines. Apple’s market capitalisation alone fell by over $300 billion following the announcements. Other household names with significant reliance on international supply chains — such as Nike and Dell — also experienced notable losses.
 
International markets reflected similar trends. European equity indices, including Germany’s DAX, France’s CAC, and the UK’s FTSE 100, fell between 1.5% and 3%. The U.S. dollar also weakened, reaching its lowest point of the year. (The pound has appreciated by almost 8% against the dollar since January.)

Holding the Course

Despite this tariff-fuelled short-term volatility, it is important to remember that markets have historically recovered from similar shocks given sufficient time. For context, last week’s disruption — though sharp — is minor compared to the volatility seen during the early stages of the COVID-19 pandemic in 2020. Last week’s sell-off saw equity indices fall by up to 6% in a single day, wiping out approximately $2.5 trillion in market value. By contrast, markets fell by over 30% in a matter of weeks during March 2020, with daily declines exceeding 10%.
 
Volatility is an unavoidable part of investing in global markets, especially equities. While its impact can be mitigated, it cannot be completely avoided. What is within an investor’s control, however, is their response to such volatility. During periods of swift market declines, end-investors may feel uneasy and compelled to act — often driven by well-documented behavioural biases — and may be tempted to sell assets at precisely the wrong time.
 
In light of this, we encourage investors to focus on their long-term plans and the core investment philosophy behind their portfolios. We believe that markets are relatively efficient over the long run, and that staying invested through periods of volatility is a key part of achieving long-term success.
 
Source for index performance data: Morningstar Direct, shown in USD terms, extracted 04/04/25.

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