Unravelling the complex tapestry of global trade in 2025
In the complex world of macroeconomics, President Trump’s tariff policies have emerged as a transformative force, potentially doing for the US what Brexit has done for the UK. This strategic approach represents more than just a trade mechanism – it’s a comprehensive economic philosophy that challenges traditional global economic paradigms.
What is Trump’s strategy?
At the core of Trump’s economic strategy lies a multidimensional approach to international trade. Unlike conventional economic thinking, his policies are rooted in a 19th century economic worldview that views trade deficits as a direct threat to national strength and economic sovereignty.
Through the introduction of these tariffs, Trump could be trying to achieve multiple (but potentially conflicting) goals: rebalancing trade deficits, reindustrialising the US, devaluing the dollar, raising revenue and advancing other policy objectives by putting pressure on neighbouring countries and traditional allies.
How have markets reacted?
Trump’s announcement of a broad range of ‘reciprocal’ tariffs on 2 April (or “liberation day”), triggered a significant bout of market volatility with the S&P 500 experiencing a dramatic 10% fall (18% down on its recent peak). This was eventually halted as Trump announced a 90 day pause on the policy.
Bond markets are usually the beneficiaries of equity market sell-offs, with investors seeking ‘safe haven’ assets, with US government debt (Treasuries) ranking as first choice. However, with the US being the source of the turmoil, it seems that investors were preferring to put their money elsewhere and in fact sell US Treasuries, as reflected in a sharp rise in yields. Instead, Gold continued on its recent upward trajectory, but also other equity markets (particularly Europe and the UK) saw inflows. Whilst it’s unlikely that the US will lose its ‘safe haven’ status in the near future, it could be a sign that its position is weakening, which could have implications in the future as it seeks to finance its deficit.
A key question remains to be answered though, which is what will the impact of tariffs be on the real economy? Economists and market analysts predict potentially substantial long-term implications. Global growth forecasts have been downgraded, reflecting disruption in international supply chains and the potential restructuring of trade relationships.
How should investors respond in an uncertain environment?
At the time of writing, markets have recovered from the liberation day turmoil, apparently on the premise that Trump will always back down when faced with market sell-offs. However, a great deal of uncertainty remains, particularly with the end of the 90 day pause fast approaching.
When faced with uncertainty, it’s important for investors to avoid reactive, emotional investment decisions. Market corrections are not uncommon and losses are often recovered quickly unless they are crystallised by selling assets. A balanced portfolio, combined with cashflow planning can help to weather the storm.
On the flipside, uncertainty brings opportunity as well as risk; investors with a well-defined journey plan can move more quickly to lock in gains.
Dan Redwood, Senior Investment Consultant
02 July 2025