US President Trump’s tariff announcement on the self-proclaimed ‘Liberation Day’ (2 April) was at the upper end of expectations, with a universal basic tariff of 10% on all countries and additional country-specific reciprocal tariffs ranging from 10% to 50%. Chinese exports, which are already facing a 20% tariff increase, were hit with an additional 34%, taking the total increase to 54%. Exports from the European Union will see a 20% increase in tariffs, while UK goods will only see an increase in the magnitude of the 10% basic tariff. Japan will see a 24% tariff increase, and South-East Asian exporters, such as Vietnam and Cambodia, will see tariff increases of 46% and 49%, respectively. 

Previously announced tariffs of 25% on steel, aluminium, and cars will remain in place, and these goods will not be subject to the additional tariffs. In addition, the exemption for imports from Mexico and Canada, in compliance with the terms of their 2020 trade agreement, will remain in place. 

The main justification for the big increase in tariffs is the president’s perception that the US is being cheated on trade, suggesting that the announced tariffs are a way to force countries to negotiate trade deals that appear more favourable to the US. The final trade deal will, in most cases, result in lower trade barriers than those announced on 2 April. At the same time, the negotiations could well drag on for the next three to nine months and include retaliation, or at least threats of retaliation, as well as further US tariff announcements. 

The uncertainty surrounding these negotiations will create some downside risks for global growth and for US consumers, who will face higher prices and cut back on spending. We see downside risk to our US growth forecast of 2% in 2025, while our inflation forecast of 3.5% captures most of the inflation risk from higher tariffs. In Europe, we expect that fiscal and monetary policy will continue to try to stimulate domestic demand in response to the more difficult external environment.

As the tariffs take the economy for a whirl, we break down the impact it will have on different asset classes below.

The tariff impact on currencies

Larger-than-expected tariffs sent the US dollar lower, decoupling from interest rates. Anticipating the larger willingness of the US to endure economic pain from tariffs to achieve its policy goals, which increases pessimism about the US dollar, earlier this week we pencilled in a EUR/USD forecast of 1.10 over the next 12 months.

The tariff impact on fixed income

We reiterate our view that the approach to credit risk should be more measured at this point, with selective exposure. The question about portfolio duration becomes trickier given the increased risks to growth and inflation.

The tariff impact on equities

The fallout is expected to hit earnings modestly but weigh more significantly on valuations, particularly in export heavy sectors, such as autos and technology hardware. With policy uncertainty likely to persist for months, volatility in equity markets will remain at elevated levels. Regionally, we see better opportunities in Europe and China.

The tariff impact on metals

In contrast to the broad-based reciprocal import tariffs imposed by President Trump, those on metals are more selective. Aluminium, steel, copper, and gold are exempt, while silver is not, unless it is imported from Canada or Mexico. We stick to our established views and remain Constructive on gold and silver.

To learn more about this as it develops, tune in to our latest podcast on the topic here: