Trump’s Tariffs: Market Fallout and the Road Ahead
Global markets took a hit following Donald Trump’s surprise “Liberation Day” tariff announcement, sparking fears of a renewed trade war. With tariffs ranging from 10% to 50% on a wide range of imports, investors are now grappling with the potential impact on inflation, interest rates, and global economic growth.
Tariffs, Tumult, and Trump: What Liberation Day Means for Markets
Financial markets took a sharp downturn across the globe following Donald Trump’s so-called “Liberation Day” on 2 April, when he announced sweeping tariffs on countries exporting goods to the US. These new tariffs range from 10%—as seen in the UK—to as high as 50% for other nations, setting the stage for what many fear could become a full-blown global trade war.
Why Did Markets React So Strongly?
Markets had already been jittery in the lead-up to the announcement, but it was the sheer scale and severity of the tariffs that caught investors off guard. The fear now is that these measures could stifle economic growth, squeeze corporate earnings, and lead to retaliation from other nations.
In simple terms, tariffs are taxes on imported goods—costs that are usually passed on to the buyer. Trump believes this strategy will bring in more revenue for the US government and encourage consumers to buy more domestically-produced goods. However, critics argue that it will only push up prices across the board, whether goods are imported or made locally, as domestic production often comes with higher input costs.
This all points to one worrying outcome: a further rise in the cost of living.
What Does This Mean for Interest Rates?
Higher inflation is typically a red flag for central banks. It eats into the value of financial assets and can force a change in interest rate policy. While a slowing global economy would usually warrant interest rate cuts, rising inflation muddies the waters. Central banks could be caught in a bind—unsure whether to ease monetary policy or hold off to avoid fuelling price rises.
Some countries, like Canada, have already cut interest rates in anticipation of a slowdown caused by these tariffs. Others may follow suit, although more data will likely be needed before bigger players like the US Federal Reserve or Bank of England make their next moves.
How Did Markets React?
Stock markets around the world fell sharply, with the US and Asia being hit hardest. The US dollar also weakened, reflecting growing investor concerns about the potential fallout.
Oil prices dropped by around 4% on concerns that slower economic activity could mean reduced demand for energy. Even gold—usually a go-to safe haven—failed to benefit, which surprised many.
Biggest Losers on the Market
UK banking stocks such as HSBC, Standard Chartered, and Barclays were among the hardest hit. Their large exposure to Asia—one of the primary targets of Trump’s tariffs—has left them vulnerable.
Investment trusts focused on Vietnam were also punished, following the announcement of a hefty 46% tariff on goods imported from the country. For many companies that had shifted manufacturing from China to Vietnam, this was a particularly unwelcome blow.
In the US, consumer-facing companies reliant on imported goods were hit hard. Nike, Five Below, and Gap all saw their shares tumble after the announcement.
Were There Any Winners?
Not all sectors suffered. Defensive stocks—those seen as more stable in turbulent times—held up well. Utilities, pharmaceuticals, and tobacco companies were among the few to gain ground.
National Grid, Haleon, and British American Tobacco all rose in the UK, as investors sought shelter in companies whose products remain in demand regardless of the economic climate.
Pharmaceutical giants GSK and AstraZeneca also saw their shares rise, helped by the fact that medicines were excluded from the new tariffs.
What’s Next?
Over the coming weeks, we’re likely to see Trump’s administration enter negotiations with various countries. These talks may involve bargaining over tariffs in exchange for concessions like better trade terms or access to natural resources. However, not all countries may be willing to play ball, raising the risk of further geopolitical tensions.
In the meantime, markets are expected to remain volatile.
How Should Investors React?
Periods like this are a good reminder of the golden rules of investing:
- Stay calm: Knee-jerk reactions can often do more harm than good.
- Be patient: Markets have always had ups and downs, but they also recover.
- Keep contributing: Regular monthly investments benefit from market dips, as you buy more when prices are lower.
- Diversify: A well-balanced portfolio spreads risk and helps smooth out returns.
While the headlines may seem dramatic, and the volatility uncomfortable, history shows that staying the course can often be the most rewarding strategy in the long run.
If you’re feeling uncertain or concerned about the current market situation, please don’t hesitate to schedule a call. We’re here to talk things through and help bring some peace of mind.
Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.