08 Apr 2025
Global news headlines have been dominated by US tariffs, including announcements on ‘Liberation Day’, 2nd April. The reaction in markets has been significant with substantial falls in key equity markets, exacerbated in some areas by public holidays at the end of last week when reciprocal announcements were being made which has resulted in greater volatility this week. The tariffs are due to be implemented on April 9th, so there is a window for potential negotiations to take place before then, and affected countries will have to decide whether to bargain or not. Some, such as China and perhaps Europe, may prefer to work on boosting their own domestic demand and so may let the undermining effect of tariffs on the US economy play out, but other countries may look to negotiate. Of course, this assumes that the US administration holds its nerve.
It’s not clear what President Trump’s pain tolerance is, or where his focus lies. He may see the short-term reactions of the stock market as a prediction of longer-term effects on the real economy but if not, and he waits to see the actual effects on the economy, then his timeframe for changing course will be longer. His statements over the weekend, combined with the lack of comments by Treasury Secretary Bessent, and Trump’s commitment to a mercantilist policy focused on trade balances, does not bode well for short term market volatility.
What would make the US change course? The imposition of the tariffs has been driven by Trump wanting to rebalance the global trading dynamic in favour of the US and so it seems likely that he would need to declare some form of victory to change course. This could be through countries offering concessions such as Vietnam offering to reduce tariffs on US goods to zero. There is also pressure from an increasing number of Trump’s supporters criticising the measures, including republican politicians, business leaders, and hedge fund proprietors, many of whom were big campaign donors. Markets are currently being driven by the effects of a policy which has previously been used to solve problems rather than create them. A severe downturn is already priced in, so any hint of a change of course could see a sharp relief rally.
The level of uncertainty created by these policies will continue to dominate sentiment and markets in the short term. Whatever the outcome of any negotiations, investors have been unnerved and will be concerned that the rest of the presidential term could be equally as volatile. For the time being, predicting short term market moves is all but impossible and having a diversified portfolio and maintaining faith in it is the most sensible approach.
Ken Rayner, CEO of RSMR
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