Newsletter: April 2025

The last few days have once again been very interesting for investors.  As if we hadn’t already weathered enough with everything that’s going on in the world, ‘Trumponomics’ kicks in.  As ever, we and investment managers will keep the events under review and advise you to take whatever action is necessary to ensure you are all financially stable both now and in the future.

As a backdrop, the Trump administration believes the US is being disadvantaged by higher taxes being levied on American good being sold to other parts of the world (exports), than are paid by Americans who buy goods from the rest of the world (imports).

So, the US has imposed a minimum tariff of 10% on most of its trading partners, and higher tariffs on roughly 60 other partners.

These are not what is often called a ‘Black Swan’ event—i.e. nobody could have seen them coming.  In fact, it was the opposite. Trump has been very vocal about implementing “huge” tariffs since the start of his re-election campaign.   Countries such as China have been preparing for this latest escalation in their economic battle with the US for months, if not years.

Trump continues to argue that America will benefit from these tariffs and implies that other nations will lose.  Most economists disagree. While some countries will face significant headwinds, they will adapt and ultimately thrive.  Meanwhile, the US itself will also suffer economic consequences.  In the coming weeks, we expect more pro-growth policies and stimulus measures from Europe and China, which should positively impact their markets.

Trump has also forced the world outside the US to become less dependent on America for trade and economic stability.

While there may be scope for these tariffs to come down over time, as deals are done with trade partners, it is also possible that the tariff level keeps moving higher in the short term as countries retaliate.

Whilst Trump believes tariffs are ‘beautiful’, the consensus is that they will add at least 2% to US inflation and push GDP down by 1-2%.  This could leave the US economy flirting with a recession, hardly a good outcome for the American people; some of whom voted for Trump to make them better off.

Looking closely at those countries affected by tariffs, there are no winners from a trade war, however, we can see already a divide occurring.  Canada and Mexico appear to get off lightly after initially being the primary focus of Trump, whereas the China and Asian economies are heavily impacted and are arguably the biggest losers.  Europe sits somewhere in the middle of these, with the UK facing a lower tariff rate than the EU, hence why Trump believes Keir Starmer is ‘happy’ with 10% tariffs.  Nevertheless, the tariffs could be negative for global growth, so hopefully the White House pulls back from these sooner rather than later.

Further market turbulence is likely over the coming weeks/months as markets see how much retaliation there is and how much scope there is to negotiate the tariffs down.  However, there remains a tremendous opportunity here for investors who can see past the winners of the last few years.  These tariffs clearly increase the risk of a short-lived recession in the US, but our base case remains that this is avoided.  If there were a recession, markets would very likely fall further. However, central banks would respond by cutting interest rates considerably, limiting the extent of any downturn and providing the basis for a subsequent recovery in markets.

Will tariffs go higher still?

There is, of course, a risk Donald Trump isn’t yet done with his tariffs, and that he announces further tariffs in the future.  Various trade ministers are yet to formulate a response and up to now, Canada has pledged to retaliate.  China is the world’s second largest economy, and they may have a reserved response, and only curb exports of critical minerals and pressure the Trump administration by retaliating against US businesses operating in China, with Elon Musk’s Tesla a likely target.

Tariffs could move lower

There is still scope for US tariffs to eventually settle at a lower level, and this is probably still a widespread expectation.  Trump has been consistent in his approach in that, he shouts first and calms down afterwards.  The 10% global tariff baseline is likely to be seen as a floor, but other tariffs such as those applied to new cars sold in the USA could be brought down.  If Americans can’t buy the things they want, at an affordable price, they might not buy anything at all, even if alternative American products are available.

It is very much possible that a very negative market and voter response may incentivise the Trump administration to calm themselves.  There is little reason to believe that these tariffs will reduce the US trade deficit any time soon, so Trump may have to backtrack on his policy quickly and come up with something else to shout about.

The net impact on the US economy will almost certainly be negative and US businesses won’t like that.  Already we have seen the US stock markets fall by a greater degree than others.  That said, they had been on a very good run, so in essence for now, it’s only previous growth which is being eaten into.  As at 4th April 2025, the S&P was still up almost 5% on the year and the Dow Jones up over 5% over the same period.  Again, over the same 12-months, the UK’s main index, the FTSE 100, was up almost 3% despite recent market volatility and up over 50% over the last 5 years. 

We appreciate that these numbers do not take into account the market reaction to Trump’s tariffs on 7th April, but I hope they provide some comfort that spending time in the market usually always wins.

So, in summary, the current Trump administration is trying to stir things up (again) and the market reaction has been volatile, but we will keep you informed and contact you should any specific actions be needed but for now, sit tight, and wait for a sense of normality to return.