Liberation Day & Markets
The widely anticipated US tariffs were announced on Thursday 3RD April via executive order on America’s so called ‘Liberation Day’. The policy is intended to ‘make America wealthy again’ as tariffs effectively tax foreign producers on their imported goods, as a percentage of their value. The US is currently the largest goods importer in the world and is currently running a trade deficit (imports more than it exports). President Trump has said he will not negotiate. However, if countries are willing to lower their charges on US goods, the White House will reduce the rate in effect.
Market impact
US Equities have sold off sharply, particularly those reliant on imported goods, as well as foreign companies which have significant exposure to the US market. The markets are moving quickly at the moment. At the time of writing the FTSE 100 is down, since the start of April, 10.8% to below 8,000, whilst sterling had appreciated to 1.32 against the dollar. Bond prices have broadly risen as investors have sought perceived safer assets.
What we know about the Tariffs
The tariffs imposed are of a reciprocal nature, meaning countries are free to retaliate with their own tariffs on the US. Below are some of the standout tariffs that Trump has imposed across the globe:
· China 34%
· India 26%
· Japan 24%
· EU 20%
· UK 10%
Additionally, 25% tariffs have been applied to all foreign automobiles sold in the U.S.
What we don’t know
President Trump has not made it clear whether the tariffs will remain in place indefinitely and whether indeed they will remain at the initial level. There are many factors that could impact their longevity, including legal ramifications and future election implications. It is also yet to be seen how and when other countries will react to these changes.
Countries may look to increase their current tariffs on the US or indeed may consider reducing them. Additionally, President Trump has stated that the only way to gain exemption from the tariffs is to set up factories and build products in the U.S, so we await to see how countries and companies react to this proposition.
What to do?
While volatility and policy uncertainty will likely persist in the short term, we recommend investors keep a cool head. The challenge is to avoid overreacting to the elevated day-to-day volatility and remain focused on your financial plan.
Central Banks have been in a holding pattern in anticipation of actions taken by President Trump, and therefore, this announcement may have an impact on future Central Bank policy and interest rates. From a longer term perspective, we may see implications for economic growth across various regions, however it is too early to tell at this stage.
From an investment standpoint, we continue to focus on the fundamentals, maintaining a long-term mindset, whilst paying attention to valuations. Market volatility can provide investors an opportunity to rethink their portfolios and find some better-valued investments with more attractive returns. However, it is important to note that while selloffs can produce bargains, investors should not buy simply because stocks look less overvalued.
Investing is always full of uncertainty, and portfolios are constructed with this in mind. Valuations are key in managers decision making process, whereby their research process identifies return drivers from over sold assets, offering investors a high margin of safety. Against that they also hold defensive assets that can add ballast to portfolios during periods of turbulence, including high quality government bonds and defensive equities such as consumer staples.
Diversification continues to be a strong portfolio strategy in these times of uncertainty.
As the 2025/26 tax year starts, the current volatility also presents opportunities to invest cash and use ISA and pension allowances earlier in the year.
If you have any questions or would like to look at investment options now, please contact your Prosperis adviser on 01423 223640 or advice@prosperis.co.uk