Stay The Course Through Tariff Volatility

Even the most experienced Trump watchers, used to the US president's rhetoric-driven approach, were caught on the wrong foot by extent of the tariffs announced last week. Knowing the incumbent president’s love of the 'art of the deal', trade rhetoric was considered to be a pressure tactic to achieve various objectives. But we should not have been surprised: on this subject, Trump has been surprisingly consistent. Tariffs were an issue on which he ran his election campaign, and tariffs were what we got.

Whether this is the beginning of a trade war is matter of much debate, and depends on the reaction of the countries in the EU and Asia facing the brunt of the tariffs. One potential approach is for tariff-hit economies to devalue their currencies to maintain their exports. Another is a reconfiguration of supply chains to create closer cooperation among tariff-hit markets. Either way, there will be pressure on global growth and prices, leading to a period of uncertainty with respect to interest rates and inflation.

The impact felt at the corporate level will be a more significant factor in either the persistence or abolition of imposed tariffs. The major corporations on the S&P 500 have invested heavily in the economies facing the largest tariffs. Given the ubiquitousness of the silicon chip in all businesses, the tariffs could have a broad impact, but the initial effects will be felt by companies in the US involved in chip manufacturing or use. These companies have built up significant manufacturing capabilities in Asia. While the idea behind the tariffs is to move manufacturing back to the US and create jobs, the reality is that recreating these facilities will take time and investment. The result might be serious lobbying from the corporate world for exemptions from tariffs to protect their investments and manufacturing processes. But until these are granted – if indeed they are granted at all – the outlook is uncertain.

For investors, then, anticipate a period of elevated market volatility. As with any volatility, the key is to avoid emotion-driven decisions. Ups and downs are a fact of life for long-term investors, and the risk profile you have agreed with your adviser reflects your ability and willingness to ride out short-term uncertainty.

8 April 2025