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
Global Head of Investment Strategy
Imagine dark clouds gathering rapidly on the horizon, signalling a storm—one that threatens to unsettle global markets and reshape the trade landscape. For investors worldwide, April 2nd, President Trump’s self-proclaimed "Liberation Day," represents precisely that kind of storm.
Rather than liberation, markets are bracing for turbulence. But storms pass, and with preparation and clarity, investors can ride out the volatility—and perhaps even find opportunities amidst the turbulence. Here's exactly what you need to know, why it matters, and what actions you can take.
Trump’s Liberation Day is a pivotal moment in his strategy to drastically reshape global trade. At its core are reciprocal tariffs—a concept designed to mirror, dollar-for-dollar, tariffs and hidden trade barriers imposed on American goods by other nations. As President Trump himself vividly put it on social medias:
“For DECADES we have been ripped off and abused by every nation in the world. Now it’s finally time for the good ol’ USA to get some of that MONEY and RESPECT back.”
Trump believes this approach will finally establish fairness in trade, addressing not only tariffs but also foreign taxes, subsidies, regulations, and currency manipulation.
At the centre of Trump’s tariff strategy are America’s largest trading partners—particularly the so-called "Dirty 15," including China, Mexico, Canada, Germany, Japan, India, and notably, the European Union as a whole. This group collectively accounts for over 75% of America’s trade deficit.
Unlike in previous trade disputes, tariffs will be applied uniformly to the entire EU rather than individual member states. This reflects Trump’s frustration with perceived EU-wide practices—such as the value-added tax (VAT) and stringent regulatory standards—that he sees as disadvantaging American exporters.
However, investors should clearly distinguish between these reciprocal tariffs and other planned sectoral tariffs. While reciprocal tariffs are targeted country-by-country based on trade imbalances, sectoral tariffs—like those recently announced on autos, and potentially soon on semiconductors and pharmaceuticals—will apply broadly across all imports in targeted industries, irrespective of origin. Importantly, these sectoral tariffs may be unveiled separately and potentially at a later date.
While market consensus currently anticipates reciprocal tariffs averaging around 10%, Trump’s aggressive stance could push effective tariffs significantly higher—especially if he incorporates measures against EU-wide taxes or non-tariff barriers, potentially doubling initial market expectations to approximately 20% or more.
Such dramatic increases could quickly translate into higher consumer prices, increasing inflation pressures, and potentially slowing economic growth globally.
The reciprocal tariffs will be announced on April 2nd, but the timing of their actual implementation could vary considerably. If Trump invokes emergency powers—such as the International Emergency Economic Powers Act (IEEPA)—some tariffs could take effect almost immediately. Others, particularly those involving complex calculations against non-tariff barriers, might see delayed or phased implementation.
The recent auto tariffs (25%) serve as a stark example, taking immediate effect from April 3rd. In contrast, potential future sectoral tariffs on pharmaceuticals and semiconductors are likely to be announced later, introducing ongoing uncertainty into these sectors.
Historical experience suggests that major tariff announcements trigger immediate market volatility, and this instance is likely to be no exception. Sectors directly impacted—such as automotive, metals, and industrial manufacturers—face particular risk.
Yet investors should see volatility not merely as a threat but also as an opportunity. Such market turbulence often temporarily depresses stock prices across sectors, creating attractive entry points for well-prepared investors.
Another crucial factor is the almost certain retaliation from countries impacted by Trump's reciprocal tariffs. History shows trade wars rarely remain one-sided, and retaliation can rapidly escalate global market volatility.
The EU, already poised to respond to earlier US steel and aluminium tariffs, is preparing additional levies affecting up to USD 28 billion worth of American exports, targeting politically sensitive goods. China has similarly responded to earlier tariffs by hitting American agriculture—a key Trump political constituency—with targeted levies.
Expect further countermeasures from other trading partners, magnifying uncertainty and spreading the economic impact far beyond initial targets.
Tariffs aren’t just a political tool—they carry serious economic implications. Higher tariffs directly raise prices for businesses and consumers, fuelling inflation. Moreover, reduced consumer confidence and business investment due to trade uncertainty could slow economic growth.
This challenging combination—high inflation and slower growth—is known as stagflation, a particularly tricky scenario for investors. However, investors who understand stagflation dynamics can position themselves strategically, minimizing risks and spotting profitable opportunities.
Amid this uncertainty, panic might seem natural—but savvy investors should keep calm and think strategically. Remember, market uncertainty often presents investment opportunities, especially for long-term investors. Here are a few practical actions investors can take to navigate effectively include:
Trump’s reciprocal tariffs targeting major trading partners are set to significantly disrupt global markets, creating immediate volatility and uncertainty. Additional sectoral tariffs—potentially impacting critical industries such as autos, semiconductors, and pharmaceuticals—could further intensify this instability, though these measures may be announced separately and unfold gradually. Compounding these challenges, retaliation from the EU and other nations is highly likely, potentially amplifying market turbulence. However, volatility doesn't just bring risks—it also uncovers opportunities.
Investors who remain calm and prepare strategically, focusing on diversification, defensive investments, and selectively buying undervalued assets, can effectively navigate this storm. Rather than fear, embrace preparation. Hedge wisely, remain adaptable, and above all, avoid impulsive reactions to the inevitable market swings. Liberation Day, after all, might be a bumpy ride—but prudent investors will find a way through the storm.