3 Mins
The widely anticipated tariffs were announced on Wednesday via executive order, on America’s so called ‘Liberation Day’. The sweeping announcement is intended to ‘make America wealthy again’ as tariffs effectively tax foreign producers on their imported goods, as a percentage of their value. The US is currently the largest goods importer in the world and is currently running a trade deficit (imports more than it exports). President Trump has said that he will not negotiate; however, if countries are willing to lower their charges on US goods, the White House will reduce the rate in effect.
Market impact
US Equities have sold off sharply, particularly those reliant on imported goods, as well as foreign companies which have significant exposure to the US market. The FTSE 100 is also down, whilst sterling has appreciated against the dollar. Bond prices have broadly risen as investors have sought perceived safer assets.
What we know about the Tariffs
The tariffs that were imposed last night are of a reciprocal nature, meaning that countries are free to retaliate with their own tariffs on the US.
Below are some of the standout tariffs that Trump has imposed across the globe:
- China 34%
- India 26%
- Japan 24%
- EU 20%
- UK 10%
Additionally, 25% tariffs have been applied to all foreign automobiles sold in the U.S.
What we don’t know
President Trump has not made it clear whether the tariffs will remain in place indefinitely and whether indeed they will remain at the initial level. There are many factors that could impact their longevity, including legal ramifications and future election implications. It is also yet to be seen how and when other countries will react to these changes.
Countries may look to increase their current tariffs on the US or indeed may consider reducing them. Additionally, President Trump has stated that the only way to gain exemption from the tariffs is to set up factories and build products in the U.S, so we await to see how countries and companies react to this proposition.
What’s next?
While volatility and policy uncertainty will likely persist in the short term, we recommend investors keep a cool head. The challenge is to avoid overreacting to the elevated day-to-day volatility and remain focused on your financial plan.
Central Banks have been in a holding pattern in anticipation of actions taken by President Trump, and therefore, this announcement may have an impact on future Central Bank policy and interest rates. From a longer-term perspective, we may see implications for economic growth across various regions, however, it is too early to tell at this stage.
From an investment standpoint, we continue to focus on the fundamentals, maintaining a long-term mindset, whilst paying attention to valuations. Investing is always full of uncertainty, and the investment managers that we use for your portfolio are constructed with this in mind. Valuations are key in their decision-making process, whereby their research process identifies return drivers from over sold assets, offering investors a high margin of safety. Against that, your portfolio also holds defensive assets that can add ballast to portfolios during periods of turbulence, including high quality government bonds and defensive equities.
Diversification continues to be a strong portfolio strategy in these times of uncertainty.
Jonathan McDowall
Director