The spectre returns – President Trump and his tariffs. The announced levies on goods — largely presumed to be against China — have unsettled the market. 

The tech-heavy NASDAQ Index ended February with a 5.5% drop, influenced by a 5% drop experienced this week as Nvidia shares whipsawed. Similarly, the S&P 500 Index also fell 2.5% this week, erasing much of the January gains.

Volatility continued, as Trump’s 25% tariffs on goods from Mexico and Canada took effect on 3 March. An additional 10% duty on Chinese goods brought the total amount of new tariffs on China to 20%.

The fear was not groundless – during the first administration of Trump, tariffs cost China 1.5% of its GDP in 2018 - 2019. Estimates are that full implementation of the proposed tariffs of 60% would still be painful for China, but it would also likely be inflationary for US businesses and consumers. 

How would this Trump presidency and the tariff policies be different this time around? We gather thoughts from our fund manager partners.

<divider><divider>

Negative impact expected on US domestic economy

This is an excerpt taken from a commentary by Capital Group published on 7 Feb 2025.

The US economy is expected to continue on a path toward healthy expansion in 2025, roughly in the range of 3% GDP growth. 

The US business cycle is aging in reverse, transitioning from a late-cycle to a mid-cycle path, characterised by rising corporate profits, accelerating credit demand and generally neutral monetary policy. Most importantly, there’s no recession on the horizon.

That said, the US is significantly reliant on specific imports, including horticultural products from Mexico and energy from Canada. Not only does Canada account for almost 20% of the US oil supply and more than half of the total US oil imports, but it is also a convenient source for US importers, given the refinement infrastructure.

Modeling the impact of the tariffs relies heavily on various assumptions, but economic history suggests that both consumers and companies would be negatively impacted.

<divider><divider>

This is an excerpt taken from a commentary by T. Rowe Price published in Feb 2025

One of the main arguments for imposing tariffs would be to try to narrow the US trade deficit, which is almost double the size it was when Trump first became president eight years ago. However, this will be easily achievable. 

For one thing, there is a very good reason why the US imports goods from around the world: It would be inefficient and much more expensive to produce everything the US needs domestically.

What’s more, the relative strength of the US economy compared with the rest of the world means that Americans can afford to buy more foreign goods. If Trump succeeds in his promise to further raise US income, the trade deficit could go even higher as Americans will buy even more goods from overseas. 

<divider><divider>

Outside of US, who is most at risk from Trump’s trade tariffs?

This is an excerpt taken from a commentary by T. Rowe Price published in Feb 2025.

Which countries outside the U.S. will be hit hardest? There are three main factors to consider here: 

1. Countries heavily reliant on manufacturing will suffer because of reduced capital expenditure
2. Countries heavily dependent on exports will be hit by reduced global trade
3. Countries that can use monetary policy to mitigate an external demand shock will be able to protect their economies better than those that cannot.

Given all of this, those most at risk include the small open manufacturing hubs of Asia and Central and Eastern Europe. Countries with particularly heavy exposure to the US, such as Mexico and Canada, could also be hit hard. 

<divider><divider>

This is an excerpt taken from a commentary by Allianz Global Investor published on 12 Feb 2025.

Alongside disruption to trade flows, new tariff measures will impact cross-border direct investment flows as manufacturers strive to direct investment towards destinations – in Asia and beyond – that will be least affected by Trump’s protectionist measures. 

This may, in fact, have a positive impact on economies on the receiving end – for example, since the first wave of tariffs, India and Vietnam have benefited from the redesign of the global supply chain.

Indeed, the China+1 theme will intensify under Trump 2.0, with Asian firms already looking towards new capacity expansion in locations such as Vietnam, Indonesia, Malaysia, and Thailand. There are booming semiconductor sectors in areas such as Penang in Malaysia, and this is leading to the development of local supply chains to support these multinationals, creating attractive investment opportunities in the process.

<divider><divider>

What about China?

This is an excerpt taken from a commentary by AllianceBernstein published on 28 Jan 2025.

US tariffs will be negative for China’s export growth, but their impact is likely to be less severe than during the first Trump administration when, in 2018–2019, they cost China 1.5% of its GDP. 

Since then, China has diversified its trading relationships, so that the US now accounts for 40% of China’s trade balance compared to 80% in 2018, and 14.5% of its exports compared to 20%.

Full implementation of the proposed tariffs of 60% would still be painful for China, but it would also likely be inflationary for US businesses and consumers. 

For that reason, it would make sense for the US to phase in tariffs gradually—as appeared to be the case in January, when President Trump announced that he intends to impose a 10% tariff on Chinese-made goods beginning 1 February.

Tariffs of 20% in 2025 could shave 0.5% off China’s GDP growth, but that policy actions would largely offset the effect.

<divider><divider>

This is an excerpt taken from a commentary by Fidelity International published on 27 Jan 2025.

After months of piecemeal measures failed to revive the economy, China unveiled a broad package of stimulus late last year – including interest rate cuts, support for the property market, and offering citizens the option to trade in their old products for subsidised newer models in an effort to boost consumption.

But there are uncertainties about whether stimulus measures like these will be sufficient to completely offset a combination of structural economic challenges and potential US tariffs. 

Domestic demand has struggled to pick up as the persistent real estate slump and the weak job market weigh on consumer and business confidence, which raises deflationary pressure even as the central bank has eased monetary policy.

<divider><divider>

Gauging the long-term impact of Trump’s trade tariffs

This is an excerpt taken from a commentary by Invesco published on 4 Feb 2025.

We have to remember that protectionist measures have tended to result in less optimal economic growth globally in the near term but have not necessarily served as a long-term hurdle for the stock market. 

Nonetheless, a period of trade policy uncertainty could potentially weigh on markets, as it did in 2018-2019, until greater clarity emerges. We could see a similar scenario unfold this time as we did in the first Trump administration — lots of drama but no real longer-term impact. I am cautiously optimistic that will be the case.

So, why have markets reacted so negatively, knowing recent history? Many assumed the Trump administration would be focused on keeping stocks buoyant and would use tariffs as a threat rather than actually implement them. Maybe that was just wishful thinking. However, markets will adjust, then experience a hiccup if more tariffs are levied, and so on and so on, similar to what we saw in the first Trump administration.

<divider><divider>

Why you should not market time trade tariffs

When it comes to dealing with unpredictable factors like US trade tariffs, market timing can prove to be an ill-suited way to use the information. 

US tariffs are inherently uncertain and are subject to political decisions, negotiations, and changing economic conditions. Even if one manages to accurately predict the implementation of US tariffs, predicting the market's reaction to such events is a daunting task. 

Markets are said to be a pricing machine, where “prices” are set by factors more than just trade tariffs. Investor sentiment, economic indicators, and far-reaching geopolitical events could play a part. 

Market timing emphasises short-term market movements, which is closer to gambling. A loss of sight of the bigger picture can cost investors loads.

Investors are better served by adopting a long-term investment perspective that focuses on the time-tested and sustainable aspects of the growth in their allocations.

Read more:

• Why does the market care so much about the US elections?
• New and old concerns: What are on the minds of global fund managers for 2025?
• What Trump’s return could mean for the economy and markets