Trump Tariffs – A Market Update

On April 2, US President Donald Trump announced wide ranging tariffs which surprised investment markets in both their magnitude and variability. Markets reacted negatively as investors quickly moved to a ‘risk-off’ stance whilst they attempted to quantify the risks of the tariffs and the implications for both investment markets and the economy.  

The tariffs are in addition to previously announced tariffs impacting countries such as China, Canada and Mexico.

What does this mean for markets?

We have seen a rapid repricing of equities and bonds post the announcement of the Trump tariffs last week. The difficulty for investors in the current environment is accurately re-pricing stocks and bonds to reflect the changing risk environment. There is a high degree of uncertainty on the path forward for the world economy. Key areas of focus right now are:

• What is the level of commitment by the Trump administration to implement the announced tariffs?
• Will the announced levels of tariffs be softened after negotiations with the impacted countries?
• What counter measures will be deployed by impacted countries in response to the announced tariffs?
• Is there a level where financial markets reach which will be a catalyst for the Trump administration to re-think their tariff policy?
• What is the appropriate price-to-earnings multiple to value companies given earnings uncertainty?
• To what extent will company earnings be impacted by the change in policy?

Given the level of uncertainty, it is not surprising investors are de-risking via selling and reducing skews. Valuations are becoming more attractive for a number of companies, particularly those who aren’t directly impacted by changes to tariff policy. However, as we have entered a period of heightened uncertainty, companies are likely to be reluctant to give earnings guidance in the upcoming reporting season given prevailing volatility.

The Trump administration’s motivation for tariffs include:

• A move towards the re-industrialisation of the United States
• Addressing persistent deficits with trade partners and a move to make the United States more self-reliant.
• A negotiating tool to extract wider ranging concessions from trading partners.
• A revenue raising exercise to fund the continuation of ‘Trump tax cuts’.

The table below incorporates market moves up until 4 April 2025. Whilst there has been a significant drop in equity markets in calendar year to date 2025, the medium to longer term numbers dating from end of 2022 provide some perspective, noting that many commentators at the beginning of the year had noted markets, particularly the US, were somewhat fully valued.

Similarly, bond market movements have been significant as shown in the table below. Noting that as bond yields go up, bond prices come down and vice versa. The bond market is starting to price further rate cuts.

The Trump tariffs are unprecedented, and the economic backdrop is uncertain. Investment markets are in the process of re-pricing risk to reflect this uncertainty.  In the current environment it is important to be alert and not alarmed.

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