Tariffs, or no tariffs? That is the Question…

A roller coaster is the best description for the market movements this week. The financial markets have seen significant volatility this month, especially since ‘Liberation Day’ last week. Yet a week later, on Wednesday, Trump paused these tariffs for ‘non-retaliating’ countries and markets staged one of the most significant rebounds in years.

Make no mistake, short term financial market performance is largely at Trump’s mercy. With an erratic leader at the helm of the largest and most powerful economy, the only thing we can be certain of is that we can’t be certain about what he will do next and the consequences of his actions (and tweets). In the short term, we have to expect the unexpected.  But we note that for long term investors, short term turbulence can offer an opportunity.

This week we unpack the short- and long-term effects of Trump’s tariffs. 

The Noise

What are the short-term market effects of Trump’s tariffs? 

• This week saw growing signs of stress in the bond market, though the end of the week offers some signs of stability returning. US 10-year Treasury yields (which move inversely to prices) jumped their highest in almost three years early in the week. A complex interplay of factors indicating weak demand led to these assets seeming less like a ‘safe haven’. This had ripple effects in broader bond markets, with UK and Japanese bond yields following in lockstep, with their yields sharply wider following suit. However, successful auctions for longer dated US bonds later in the week helped to mitigate some concerns and saw US 10-year yields stabilizing around 4.4%. By the end of the week investor’s worries about the stability of the world’s biggest debt market were somewhat soothed with Trumps reprieve from reciprocal tariffs.  

• ​American equity markets saw their biggest rally since the financial crisis in 2008 on Thursday. Off the back of Trump’s 90 day pause, this added $4.3tn to the US equity market value, though this did not make up what was lost in the sharp downturn earlier in the week. Global markets like Europe and Asia followed suit, mirroring the US relief rally. As of Friday morning, equity markets remain dampened, still reverberating from Wednesday’s rally. 

• The US dollar hit its lowest level in 3 years against the Euro on Friday - The Euro rose over 2% to $1.14 (at time of writing). Other global currencies such as Sterling, the Japanese yen and the Swiss franc also all made significant gains. This move is unusual and important to note as foreign investors aren’t following the usual trend of flocking to the dollar as a reserve currency in a market shock. This suggests foreign investor’s diminishing confidence in the US as a “safe haven” -- which can be attributed to Trump’s upending of the global economic order.

The Numbers

GBP Performance to 10/04/2025

Source: Bloomberg, data as at 10/04/2025

Definitions: MSCI - an index provider; ACWI - an acronym for ‘All Country World Index’. 

The Nuance

What are the longer-term market effects of Trump’s tariffs?

We’ve talked out the short-term impacts and volatility in financial markets, but what’s the long game? Theres been a lot of talk around tariffs, but what is the point of them, other than sending the world trade order into disarray?  The Trump administration has made contrasting claims, but ultimately intends for tariffs to raise revenue for the US government in order to reduce the government budget deficit and/or allow for other tax cuts for Americans. They also believe tariffs will lead to “onshoring” and encourage companies to invest and build manufacturing capability in the United States, rather than abroad. Only time will tell if these goals will be achieved.

And what are the long-term investment impacts? While, trade tariffs can disrupt global trade and supply chains, they can also create significant shifts that unlock new investment themes. Yet, the long-term effects depend on how the dust settles. This reinforces the idea that one of the things we can be certain about is that we can’t be certain of Trump’s next moves.

What we do know, from a long-term investment perspective, is that volatility in equity markets this week is a prime example of why time in the market matters more than timing the market.

Statistics and history show that some of the best days in the market come after the worst days; and this week is no exception. From ‘Liberation Day’ (02/04/2025) to this Tuesday (08/04/2025), global equities fell -9.66%. Yet, the rally seen on Wednesday evening (+6.54% in the global equity markets*) was in the top 5 days in the market over the past 20 years. Note, this rally in global equities didn’t even capture European gains on Thursday, as these markets had already closed when the news of the tariff pause which sparked this rally hit the news headlines.

*Source: MSCI World Index total returns from April 1, 2005, to April 9th, 2025. Returns shown in GBP.

For long term wealth creation, it’s important to stay invested: Missing the 60 best market days would result in a portfolio value a staggering 87% lower than had you stayed invested for the whole 20-year period*.

In the end, the real long-term impact on investments isn’t Trump’s tariffs or tweets – what matters is staying invested through downturns, so you aren’t sitting on the sidelines when the market bounces back. This week’s rebound is a case and point. 

We discuss the important of sticking with your investment plan further here .

 

The Niche – A fun financial fact

Staying on theme: Trade tariffs may seem like a new hot topic, but they have existed since the middle ages! English kings have collected customs on imported goods since 1303. The custom was applied to foreign merchants who had to pay an extra 50%! 

Figures quoted in this content are correct as at time of writing.