Trump announced new tariffs on ‘Liberation Day’ – Fund Managers react
3 APR, 2025
By Jose Luis Palmer from RankiaPro Europe
On 'Liberation Day,' President Donald Trump announced sweeping tariffs that have stirred significant market reactions and raised concerns about the U.S. economy. With tariffs ranging from a baseline of 10% to much higher rates on select countries, particularly in Asia, the economic implications are complex. Fund managers highlight these measures as a negotiation tactic, offering room for potential tariff reductions, but warn of ongoing market uncertainty. While some point to the risk of a 1.5% hit to U.S. GDP and higher inflation, others focus on the immediate downturn in equity markets and the possibility of further escalation. As these tariffs unfold, the economic and market impact remains fluid, with a cautious and defensive stance advised for equity exposure.
Adam Hetts, Global Head of Multi-Asset and Portfolio Manager, Janus Henderson
Eye-watering tariffs on a country-by-country basis scream 'negotiation tactic,' which will keep markets on edge for the foreseeable future. Fortunately, this means there's substantial room for lower tariffs from here, albeit with a 10% baseline in place. We've seen the administration have a surprisingly high tolerance for market pain, now the big question is how much tolerance it has for true economic pain as negotiations unfold. Meanwhile, the S&P 500's rebound after a good ADP jobs report was a reminder that the broader economy is still the focus. This week's ISM services and nonfarm payrolls data will bear extra scrutiny, as any material weakness here will fan recession fears.
Kevin Thozet, Member of the Investment Committee, Carmignac
Liberation day has seen the US administration imposing a minimum 10% tariff on all exporters from the end of the week, and much more than this on certain trading partners. Asian countries are particularly hard hit (Taiwan, Japan, South Korea, India, Indonesia, Vietnam), while Latin American countries much less so, as they appear to be on the ‘good actor’ list.
President Trump said that these tariffs are dynamic and bound to be lowered as countries come back with some concessions, lowering their own tariff and non-tariff barriers on US exports.
We estimate that this new shock would increase the average US tariff rate by more than 18%, taking it to 31% – at the high end of the market’s expectations. Such a shock could slash US GDP by another 1.5% and push core inflation higher by more than 1%.
So, this is a US economy flirting with recession this year and inflation reaccelerating. And this is before we get the next wave of sectoral tariffs, which Trump mentioned again, on chips, pharmaceuticals, copper, timber and shipping services.
Hilary Blandy, Investment Manager, Jupiter Asset Management
Markets are reeling from the worst-case scenario on tariffs and the realisation that “Liberation Day” has not liberated markets from very elevated levels of policy uncertainty as we await the reaction from America’s trade partners. How US consumers react and whether Trump’s approval ratings can survive as US growth shrinks and inflation soars is another question, although Trump could yet change tack from here. The generic risk off move in equities has been mirrored in credit markets. Spreads are wider across the board with high beta and tariff impacted names most affected. US high yield has been more impacted than European. Market volatility tends to create spread dispersion, generating opportunities for active credit selectors to outperform.
Enguerrand Artaz, Strategist, La Financière de l'Echiquier
Some had mocked the term "Liberation Day" and called it "Demolition Day." They probably didn't realise how right they were. The tariff hike announced yesterday by Donald Trump is at the high end of the most pessimistic expectations.
What impact on the markets?
The reaction of the equity markets to these announcements was, logically, very negative. While futures had risen following the Wall Street Journal's rumour of a widespread increase of only 10% (which turned out to be partly true, as it was the minimum rate, but very incomplete), they then fell sharply: -3.5% in a straight line for the S&P 500 futures, and the decline continues this morning.
At the same time, the dollar has weakened sharply against the euro and the yen, and interest rates have dropped considerably. This last point is noteworthy: the markets are in "risk-off" mode. And it is the negative impact of these rates on growth that is at the centre of concerns, much more than the short-term bullish effect on prices.
What are the prospects?
Is there room for negotiation on these tariffs? The answer seems positive. However, these negotiations will take place with tariffs in place. And the longer they drag on, the greater the negative impact of the tariffs. Additionally, it seems unlikely that many countries will escape the +10% minimum threshold. Furthermore, the risk of escalation is significant. Some countries may be tempted to take retaliatory measures. Trump has warned that, in that case, tariffs would be increased even further. This seems to have been anticipated. As surprising as it may seem, the tariffs imposed on each country are described as "discount tariffs" (i.e., lower than the tariffs the various countries are supposed to impose, according to the nebulous calculations of the White House); this leaves room for further increases in the event of escalation.
In summary, these first announcements may alleviate the situation, but it will take time. The evolution will undoubtedly be country by country, and there is a notable risk of escalation. As we suspected, this "Liberation Day" is a step forward, but uncertainty remains.
Market strategies?
Each day that passes with these tariffs will have a negative impact on US growth, primarily through consumption. Given the fragility of the average American consumer and their aversion to price hikes following the inflationary phase of recent years, the impact of tariff hikes on consumer prices will strongly affect demand. And if tariff increases are not passed on to consumers, it will be the companies' margins that will suffer. In any case, the impact will be very negative, and the risk of recession in the US is becoming very real. This situation will also weigh on the growth of our trading partners.
At this point, the markets do not seem yet positioned for this scenario. The S&P 500 is only -10% from its all-time highs, while valuations and positioning remain high. The potential for further de-risking seems significant, especially given that one of the first victims of this Liberation Day, the American individual, was also the main support of the markets over the last two years. Adopting a prudent stance, both in terms of exposure to equities and style – with emphasis on the defensive – seems appropriate.
Can European equities perform better in this context? Certainly, with less de-leveraging potential given the still weak positioning in the asset class, lower valuations, and downward pressure on the dollar, which could continue, making US equities even less attractive to euro investors. In absolute terms, however, we should not expect a decoupling: in such a negative scenario, the trend will be downward for all markets.
Where to go? Beyond cash and possibly gold, bonds – avoiding high-yield and US credit – remain the lifeline. The downside risk to global growth from these rates should continue to push yields lower. Moreover, in European IG credit, the risk of a significant widening of spreads is relatively moderate.
Marcus Garvey, Head of Commodities Strategy, Macquarie Group
In the case of base metals, ‘Liberation Day’ brings macroeconomics to the fore. Arguably, the implications of potential tariffs for the microeconomy have dominated over the implications for the macroeconomy, until today. The tariffs announced so far raise the US average to around 23%, up from 2.4% prior to President Trump's return to power.
At the time of writing, we are awaiting detailed countermeasures from other countries and regions. While there should be some countervailing stimulus in other countries, notably China, if these tariffs are applied, as stated, for a substantial period of time, they will clearly have a significant net negative effect on global industrial production and commodity demand growth. And the implications for prices are clearly bearish, as is being seen today by the market reaction.
In the case of copper, the Section 232 investigation appears to have accelerated, following several reports on 26 March that it could be concluded in a few weeks. Metal still in transit to the US is increasingly likely to arrive after the imposition of tariffs and could be diverted to LME (or other) warehouses. As a result, investors, who initially had a considerably bullish stance on the copper market, have started to reduce their exposure. The key to where support will be found lies in the levels at which Chinese buying will emerge amid declines.
Steve Chiavarone, Head of Multi Asset Group, Federated Hermes
While it is easy to become too bearish in the current climate, it is important to recognise that the first quarter has been dominated by uncertainty, leading to an economic slowdown in the US. This has put pressure on equity markets, resulting in outperformance of those companies that reward shareholders with defensive dividends, longer duration high quality fixed income and generally non-US equities.
However, we believe that we are approaching the peak of uncertainty. We anticipate that the current focus on tariffs will soon shift to more positive developments for the US economy, such as the negotiation of lower tariff rates, tax cuts, Fed rate cuts (possibly as soon as June) and deregulation. This change could significantly alter the narrative, especially in a context of low expectations.
In this environment, we believe that cyclicals, small caps and growth stocks that have suffered the most will perform better in the second half of the year. To remain constructive, we are closely monitoring three key areas: the labour market, with this Friday's employment report being crucial, credit spreads, which have widened slightly but remain relatively tight, and corporate earnings, which continue to show solid estimates.
