Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
Global Head of Investment Strategy
Here’s an unsettling thought experiment: Imagine you wanted to deliberately tip a thriving economy into recession. I asked ChatGPT about how to do this. This exercise playfully laid out five moves you’d make—start a trade war, sharply hike interest rates, slash government spending, undermine consumer confidence, and trigger geopolitical turmoil.
Ironically—and worryingly—Donald Trump seems intent on checking almost every box. With these latest tariffs, he's done four out of five, skipping only an aggressive hike in interest rates. This realization is sobering, suggesting Trump may unknowingly follow a perfect recipe for recession.
Trump’s new tariffs are broad and aggressive: a baseline 10% tariff globally, but much harsher levies on crucial trade partners—China (34%), Taiwan (32%), and Europe (20%). Read more in this article.
The global reaction has been swift and severe:
History offers a cautionary tale. Trump's tariffs recall the 1930 Smoot-Hawley Tariff Act, widely considered to have deepened and prolonged the Great Depression. Today’s protectionism surpasses even those notorious levels, sparking fears of similar economic self-sabotage.
In a significant twist, Trump recently signalled openness to negotiation. He indicated he could consider rolling back tariffs if trading partners offered something "phenomenal" in return, suggesting his stance might soften if substantial concessions are made. However, he simultaneously hinted that more tariffs—particularly on pharmaceuticals and semiconductors—may be on the way, leaving investors with cautious optimism at best.
Trump's tariffs already raised the spectre of stagflation—a dangerous cocktail of slowing growth and rising inflation. With China's sweeping retaliation—imposing 34% tariffs on all US imports—the global economy edges closer to a tipping point.
Markets have reacted sharply to China's response, deepening recession fears. Stocks extended their sell-off, bond yields tumbled as investors sought refuge, and major banks like JPMorgan now see a 60% likelihood of a global recession this year, significantly up from previous forecasts.
This dramatic escalation underscores how Trump's tariffs—and the responses they provoke—could push economies into uncharted, turbulent waters, forcing central banks into difficult decisions about interest rates and economic support measures.
Tariffs aren’t isolated to the US. Europe faces renewed recession threats; Canada warns its relationship with the US "will never be the same"; Japan calls it a "national crisis"; Switzerland scrambles to respond to unexpectedly harsh tariffs.
China's rapid and sweeping retaliation further amplifies these global recession risks, threatening severe disruptions to global supply chains and trade relationships. Beyond immediate volatility, these tariffs might also prompt long-term shifts away from US economic leadership, weakening dollar dominance and reshaping global markets.Market turbulence is unsettling—but it's also a moment of opportunity. Here's how you can respond effectively and strategically right now:
1. Stay calm—avoid panic decisions
Emotions are the enemy of good investing. Markets thrive on confidence and crash on fear, but historically, panic-selling during volatility rarely pays off. Now is the time to hold steady, stick to your investment plan, and avoid emotional decisions.
2. Diversify and rebalance
Certain sectors are highly exposed to tariff fallout, notably automotive, technology, and industrials. Take this moment to reduce exposure to highly vulnerable stocks or sectors.
Rotate toward more defensive sectors such as healthcare, utilities, and consumer staples. Increase geographic diversification, reducing reliance on heavily impacted regions.
3. Seek out safe havens—quality is crucial
High-quality bonds and stable dividend stocks offer protection in volatility. Government bonds have rallied amid market uncertainty—consider adding or increasing your holdings. Moreover, gold and defensive stocks remain reliable shelters during economic storms.
It’s easy to panic when dramatic news hits markets. But history teaches us that even severe shocks tend to fade, and disciplined investors emerge stronger. Trump's tariffs will continue to create short-term volatility, but they also underline the necessity of diversified, resilient portfolios built for long-term success.
In stormy seas, steady hands win. Stay calm, diversify strategically, embrace quality assets, hedge inflation risks, and look for new opportunities. Turbulent markets are tough, but prepared investors don’t merely survive—they position themselves to thrive.
The tariffs are Trump's gamble. Your job as an investor is simpler: remain clear-headed, informed, and strategic. Remember, every storm eventually clears. Your preparedness and patience today will set the stage for tomorrow’s gains.