Client Update - 4th April 2025

I am afraid I have no choice; today’s update is indeed all about President Donald Trump. On Wednesday we had the much discussed “Liberation Day” tariff announcement and it was pretty blunt and to the point. If you place restrictions on US trade, we are going to do the same to you. Just not quite as bad as you have done to us, as you are all my friends, and (by the way) this is actually a negotiation. Such was the size of some of the tariffs levied, the final part has been lost on markets in the last two days. Due to the importance of the announcements this week, my update is a little longer than usual.

Let’s review the numbers, which are quite something. President Trump announced a blanket 10% tariff, to start on the 5th April, on all trading partners and additional “reciprocal” tariffs for countries with whom the US has trade deficits, that will start on the 9th April.

Some of the key reciprocal tariffs are:

• 34% on China (plus the 20% already announced)

• 24% on Japan

• 26% on India

• 20% on the EU

• 46% on Vietnam

• 10% on UK (finally, some “good” news)

I mention Vietnam as a lot of Chinese and European goods are manufactured here. Trump knows this and hasn’t allowed for any avoidance. The higher your trade imbalance with the US, the higher your reciprocal tariff. Mexico and Canada are off the hook for additional tariffs - for now.

Analysts estimate that if all proposed measures are implemented, the effective tariff rate on US imports will leap from 2.5% to more than 22%, exceeding levels seen during the Great Depression. Inflationary pressure is the immediate consequence.

The extent of the impact will depend on how the world reacts in coming weeks. Economists estimate US GDP could reduce by 1-to-1.5% over the next 12 months and expect inflation to rise by around 1%. Global growth GDP could reduce by about 0.50%.

Before I go any further, I want to return to the two key dates.

According to Trump, the baseline 10% tariffs do not come into effect until 5th April, with the additional reciprocal tariffs due to come in on 9th April. This evidently allows for negotiations, and hopefully, the US will accept concessions before, or soon after, some of these tariffs come into effect. Remember the key fact about Trump – he sees himself as the great negotiator and this looks like the first part of his plan has been announced. Next is deals with global trade partners, closely followed by a negotiated “peace” in Ukraine. Trump wants the headlines and currently he has them.

For me, the most important announcement on Wednesday night was from US Treasury Secretary Scott Bessent, who urged countries to not retaliate, even suggesting these countries come to the negotiating table as he stated the tariff numbers announced by Trump were “the highest” they would be, suggesting they may end up lower. No one wants a full-blown trade war, which would send trade volumes down, strain global growth further, increase inflation and ultimately lead to a recession.

Trump’s announcement has made it increasingly clear that restoring the industrial base in the US is the core priority for him. It has long been known that globalisation did not benefit all segments of society equally and President Trump is speaking directly to the cohort that has often been referred to as ‘those left behind.’ This was evident in the 25% tariff on cars imported into the US that was announced last week, so much so that he had car workers present at his Wednesday announcement and one was actually invited onto the stage at the start of Trump’s speech to remind everyone how wonderful President Donald J Trump was. Theatrical, cringy, but none-the-less, insightful.

His administration has repeatedly mentioned that this is about Main Street, not Wall Street, and therefore perceptions that falling stock prices would limit policies have so far been mistaken.

With such a historic change, it’s tempting to cut risk asset exposure. There are key reasons to question whether this is the right strategy. It remains very possible that market moves, negotiations, and the sheer practical realities of being able to implement these policies within a matter of days, lead to them being scaled back.

While talk of retaliation is likely to come first, governments across the world may yet choose to react to the likely growth hit of tariffs via tax cuts, whilst negotiating with Trump to soften the immediate impact and the final tariff rate.

It is important to remind ourselves why it is dangerous to try and time the market by looking at this news and moving to cash. Historically, the best and worst trading days have tended to cluster in brief time periods, often during periods of heightened market uncertainty and distress, making the prospect of successfully timing the market improbable.

Past performance is not a reliable indicator of future results.

The green bars highlight the 20 best trading days since 1 January 1980 and the gold bars highlight the 20 worst trading days since 1 January 1980. Source: Vanguard calculations in GBP, based on data from Refinitiv, as at 3rd July 2024.

Therefore, our job is to manage your assets, keep calm, consider the news and future expectations, and act accordingly. We moved very underweight US equities in December and year to date our portfolios remain in positive territory, even after the recent volatility.

You would expect countries facing the higher tariffs to look to sell goods once intended for the US to other markets, including the UK. This could make things cheap for consumers here. Apple makes most of their iPhones in China. If these now receive a 34-54% tariff that’s a chunky price rise for US consumers. Expect to see American tourists looking confused when they see new iPhones substantially cheaper in a UK Apple Store than back home.

At the end of the day, Trump likes uncertainty, because it gives him negotiating leverage by keeping his opponents off-balance and keeping the attention on himself. This is not going to change anytime soon. For now, we must assume this is the start of negotiations and whilst a very forceful start, if he does uphold his reputation as someone who likes a deal, this week should mark the lowest point of the year, and therefore things should improve from here. Ultimately Trump will move from focussing on countries to companies, as he forces them to relocate manufacturing to the US, and will reward them with tariff exclusions. Markets can make good ground on that news. Do have a good weekend.