Tariffs and Markets: How will the cards land?

As an investor, you’re probably used to the ups and downs of global markets, and the uncertainty that comes during tough times. When markets fall, it’s easy to think that investing has changed forever, and that recovery might never come. But history shows otherwise. Global events like the COVID-19 pandemic and the Russia-Ukraine war are examples of significant change, but they also unearthed new growth, innovation, and adaptation in the markets. Just like turning over soil helps new plants grow, these crises have opened the door to new opportunities. Even after the global financial crisis, the world eventually moved forward and grew again.

The current shift, named by the Trump administration as Liberation Day, marks a seismic change with profound implications around the world. While the shape of the global economy may appear different, one thing remains certain: businesses will keep growing, economies will adjust, and life will go on – just not always as we expect. The full impact is hard to predict, much like tossing a deck of cards into the air and waiting to see where they land.

The US administration may believe it can control the outcome, but the reality is far more complex. New alliances are being forged, existing ones are tested, and nations are adjusting their strategies in real-time. This is not simply about tariffs – it’s about reshaping global economic and political relations. The risk to the status quo is evident, but with risk comes opportunity, particularly for those whose investments are diversified.

There are various scenarios we have considered. The current reality of escalating trade wars is arguably one of the worst-case scenarios, but on the other end of the scale it is possible that tariffs are just a giant negotiating sledgehammer to crack a trade deficit nut. That President Trump’s opening gambit is the worst, and he will scale back from here. He has suggested that countries should come forward to negotiate, signalling that this period is not the final resting place for the world’s economic order. If true, this could also present a significant buying opportunity.

For now, the tariff situation is still changing, and it’s unclear exactly what the impact will be. Economists expect that if all tariffs remain as announced, US growth could slow by about 1–1.5% this year, and core inflation could rise by a similar amount. Tariffs are also making global supply chain problems worse, adding to market volatility.

For example, the EU is facing a 20% tariff, the UK a 10% tariff, and most Asian countries are seeing tariffs over 24%, with Vietnam facing rates as high as 46%. China’s retaliatory tariffs have added even more uncertainty. Overall, the average tariff on US imports could rise to 25–30%, much higher than expected.

Adjustments to our portfolio strategy

We made strategic adjustments to our portfolio positions ahead of these developments and will continuously review our positioning as negotiations unfold, but it is worth emphasising that some of the foundational cornerstones of our strategies are diversification, transparency and liquidity. This allows us to diffuse risk and tap into opportunities quickly.

Early in the year, we moderated our overweight stance in equities, particularly among US companies, shifting to a more neutral approach while increasing fixed income exposure. Sharp declines in Treasury yields have provided welcome stability amid ongoing equity market turbulence. We also enhanced our European equity positions, which have benefitted from increased fiscal support and defence spending, and expanded allocations to emerging markets and Japan, where valuations remain compelling and corporate reforms offer additional upside potential. An opportunity to add to some previously overvalued companies is forming and we might take the opportunity to redeploy some capital to the US.

On the fixed income side, we raised our allocation to US Treasuries, benefiting from their safe-haven status during periods of heightened risk. Treasuries and corporate bonds offer compelling yields, so we have increased our overweight position to this asset class.

Our investment in gold has performed exceptionally well – posting a 19.5% gain in the first quarter of 2025 – acting as a reliable hedge against the uncertainty introduced by tariff disruptions.

Finally, our exposure to real assets remains steady, providing essential diversification, while maintaining healthy cash buffers ensures we are ready to deploy capital swiftly when market corrections create new opportunities.

What should you do?

It is likely the answer to this is ‘do nothing’, except get in touch with your Private Banker if you are concerned. Your goals are likely longer term than the months of uncertainty ahead, or than the selloff that you see in the news headlines. If you owned a field and the price of land dropped because of a crop failure, and then your neighbour ‘kindly’ offered to buy your field at half its price, you would likely tell him (politely) to go away. The same applies to markets: when markets are rocked, hold your nerve, don’t sell cheap to someone else. Instead, let us worry about opportunities and risk. This is arguably the time to be buying, not selling. And this is exactly what we are doing with those markets that were overpriced and which we were underweight

The best trading days often come right after the worst, just like green shoots appear on tilled soil, so despite the turmoil, there will be long-term buying opportunities for those with patience, a long-term perspective, and the ability to sift through the noise.

As always, our approach remains one of active management, capitalising on dislocations, balancing risk and reward, and staying focused on long-term objectives. While we don’t yet know exactly how political cards will land and who the ultimate winners and losers will be in this trade war, we do know that growth will not decline over the long term. Companies will adapt, and new opportunities will emerge, though the landscape may look very different from the one we once knew.