Tariff turmoil: Trump’s risky gamble—a dangerous game for markets and economy

Tariff turmoil: Trump’s risky gamble—a dangerous game for markets and economy

Jacob Falkencrone

Global Head of Investment Strategy

Key points:

  • Trump's historic tariffs and China's aggressive retaliation have dramatically increased the risk of a global recession and market instability.
  • Investors should remain calm, diversify their portfolios into safer assets, and proactively hedge against inflation and further volatility.
  • While Trump has left room for negotiation, uncertainty remains high, underscoring the importance of maintaining disciplined, long-term investment strategies.

With markets rocked by Trump’s historic "Liberation Day" tariffs—the highest in over a century—investors must act wisely. Here’s what you need to know and do now.

When Donald Trump triumphantly declared April 2nd as "Liberation Day," he did so by imposing tariffs of historic magnitude. Yet, global markets certainly don’t feel very "liberated"—instead, they've been plunged into chaos, wiping out $2.5 trillion in US equity value in mere days. Despite this turmoil, Trump doesn’t appear worried: “It’s going very well—the markets are going to boom, the stock is going to boom, the country is going to boom,” he confidently declared Thursday evening.

In a rapid and dramatic escalation, China has announced it will retaliate with a 34% tariff on all imports from the US, effective April 10th. This stark response significantly deepens the trade conflict and further intensifies investor uncertainty. Markets immediately reacted with panic: stocks indices sank sharply, and traders aggressively increased bets on Fed rate cuts.

But beyond dramatic headlines, this moment demands careful reflection. As an investor, understanding what's happening, why it matters, and how to react is crucial.

A dangerous playbook: Trump's recession recipe?

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.

Tariffs explained: why the panic in markets?

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:

  • Stock market chaos: US equities plummeted by $2.5 trillion in a matter of days. Europe's key indices saw sharp losses, and Japan’s market had its worst week since the early Covid-19 crisis.
  • Consumer squeeze: Analysts forecast that the tariffs could raise annual costs for US families by as much as USD 1,350, dampening consumer spending, a key economic engine.
  • Investment freeze: Businesses face heightened uncertainty and are delaying expansion and hiring, threatening economic growth.

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.

Room for negotiation? Trump leaves the door open

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.

Stagflation and recession risks intensify

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.

Global Ripples and Long-term Risks

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.

Investor guide: Five clear steps to weather the storm

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.

4. Hedge against inflation—be prepared for stagflation
Trump’s tariffs heighten inflation risks significantly. Consider inflation-linked bonds, commodities, and real assets to shield your portfolio. Avoid excessive exposure to long-duration fixed-rate bonds, which suffer during high inflation.

5. Look for new opportunities
Global economic disruption often uncovers new growth areas. Companies shifting supply chains might create attractive opportunities abroad.

Clarity, discipline, and patience

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.

 

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.


Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.