The impact of new US tariffs on investing
The imposition of tariffs on imports of goods into the US has upset financial markets and led to large falls in the prices of company shares and commodities around the world. It’s unclear how this situation will evolve, with markets expected to remain volatile for some time.
But as with previous market crises, investors who are willing to stay patient through these times should continue to benefit from the long-term growth in share prices and economic growth from companies and countries worldwide.
What’s happened?
On 2 April 2025, at a White House event dubbed ‘Liberation Day’ by US President Donald Trump, the US announced a blanket imposition of 10% tariffs on goods imported into the US that took effect on 5 April.
Additional tariffs were levied on individual countries or regions based on their trade deficit with the US. While exports from the UK to the US will be subject to a 10% tariff due to the US operating a trade surplus with the UK, goods from Europe will incur a 25% tariff rate. Countries in South-East Asia, which are a key source of manufactured products for many US companies, were particularly badly hit, with Vietnam having a 46% tariff rate imposed.
But on 9 April, President Trump announced a 90 day pause on the imposition of the reciprocal tariffs on a range of countries. Notably, this excluded Mexico and Canada. More significantly, further tariffs were applied on imports from China, which now suffers a 125% tariff on imports into the US.
What’s a Tariff?
Tariffs are border taxes charged on the import of goods from foreign countries. Importers pay them to the customs agency of the country or bloc upon entry. The taxes are typically charged as a percentage of a product’s value. For example, a tariff of 10% on a £100 product would carry a £10 charge at the point it’s brought into the country. As well as finished goods, tariffs are levied on components and raw materials.
Why is this happening?
The US is the largest goods importer in the world – buying products worth $3 trillion in 2023. In accordance with his ‘Make America Great Again’ mantra, President Trump wants to raise revenues and encourage US consumers to buy US made products instead of buying them from other countries. So tariffs are being used as an attempt to get companies to sell products that are built in US factories employing US based workers. The assumed proceeds from these tariffs are expected to be used to reduce the level of taxes paid by US consumers and businesses.
What’s happened to stock markets?
Markets reacted quicky, and badly, to the news of the tariffs. In the US, the S&P 500 (an index which tracks the stock performance of 500 leading US companies) fell by just under 10% in the first four days of April. Over the same period, Germany’s Dax index of leading companies fell by almost 7% and the FTSE 100 in the UK by 6%.
Asian markets were very weak on 7 April, the first trading day after the weekend following the announcement. Hong Kong’s stock market fell by over 13%, China by over 7% and Japan by almost 8%. Elsewhere, prices of the likes of copper and oil both dropped in response to the news. The US market rallied strongly on the 9 April when the 90 day pause was announced, with Asian and European markets following.
As is often the case, the price of government bonds has risen around the world, as they’re traditionally seen as more defensive assets than company shares.
How does this compare to other crises?
As the impact of the coronavirus pandemic gripped the world in 2020, the S&P 500 fell by just under 20%, the FTSE 100 by almost 25% and the Hong Kong index by nearly 15% in the first quarter of the year. But they each recovered over the rest of the year, with the US and Hong Kong markets delivering a positive return.
As always, past performance shouldn’t be used as a guide to future returns, but investors should be aware of how markets have historically recovered from periods of weakness.
What is going to happen next?
The range of outcomes is hard to predict. The very worst outcome is that higher tariff levels are imposed, and reciprocal ‘tit-for-tat’ tariffs are imposed on US goods being sold around the world. This could lead to higher prices, lower levels of trade, higher inflation and lower standards of living. Interest rates may be cut by central banks looking to support their local economies. Economic slowdowns or recessions in many countries – including the US – become increasingly likely.
In contrast, if the tariff plans are removed or greatly reduced, the shock to global economic conditions should be much less. However, it may lead to a change – albeit one that evolves over time – in how countries and regions trade with each other. The trend of globalisation that’s occurred over recent decades with lower barriers to trade across the world appears to be over.
What should I do with my investments?
We’d encourage investors to remain calm and patient. These periods of market weakness are hard to endure at the time. But from the Great Depression to the pandemic a few years ago, markets subsequently recovered.
Being diversified and staying patient gives you the best opportunity to produce solid, long-term returns. Financial markets do eventually recover, as companies, countries and consumers adapt to the economic conditions. Periods like this do produce investment opportunities, and some investors may wish to take advantage of these in time. Find out more about diversification.
All information was accurate at the date of writing on 10 April.
