Since our last video, all markets have cared about is trade policy. But there is much more to investing than that: here we explain why it’s so important to keep focussed on the long-term resilience of the markets. Before we get to that, it’s worth noting there has been a small de-escalation of the trade war.
Watch Ed's video update below.
Article last updated 10 April 2025.
President Trump delayed the introduction of the “reciprocal” tariffs announced on 2nd April by 90 days, just over 13 hours after they came into effect. To be clear, that still means all countries’ goods exports to the US are subject to a 10% tariff (aside from Canadian and Mexican goods carved out by the USMCA trade agreement), there is a 125% tariff on Chinese goods, and sector-specific tariffs up to 25% will apply (autos, steel, and possibly others which may not yet be announced – pharma, semis, copper, lumber, energy). That leaves the weighted average tariff rate at around 21% (it was 2.5% in January). Now that’s based on the 2024 country shares in US imports; with a 125% on China and 10% elsewhere there’s going to be a lot of trade rerouting in 2025 and the effective tariff rate will be lower. Still, it would leave it far above the upper end of the range forecast before Liberation Day. Even if we assume there’s a path to Chinese negotiations starting and the 125% tariff falls back to 54%, that’s still a weighted average tariff rate at 14% which is at the upper end of that forecast range.
This is still a big hit to prices (perhaps 0.75-1% on consumer inflation) at a time when inflation expectations have become unanchored. Both Federal Reserve (Fed) Chair Powell's comments on Friday and the latest minutes from America’s central bank struck a hawkish tone and affirmed that the Fed will not necessarily see tariffs as a one-off increase in the level of import prices that they would look through, as market optimists have suggested. Both consumer and CEO confidence are on the floor, markets have still taken a knock and the S&P is still 11% below its February peak. We have heard that corporate boardrooms have been left dumbstruck and, while trade policy uncertainty may have peaked, it will remain elevated over the next 90 days. Given the well documented effect of uncertainty on business spending, it makes it likely that investment projects and hiring plans will be delayed. The US economy was already starting to slow. Last night’s news means the odds of a recession in the next 12 months have reduced again but remain elevated, and growth is still likely to be weaker than we expected before Liberation Day.
As well as discussing how quickly markets can rebound from corrections, Co-Chief Investment Officer Ed Smith offers a careful assessment of what could turn the current correction into a full-blown ‘bear market’:
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