Is the worst of the trade war already behind us?

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients).

Anthony Willis

Investment Manager

Key Takeaways

The focus is on tariffs and their impact on financial markets, including wild swings in equities and a dramatic sell-off in US Treasuries and the US dollar.
The US announced a 90-day pause for reciprocal tariffs for countries not retaliating. China has retaliated which has led to a de facto blockade on trade between the US and China.
The US Administration paused the implementation of tariffs after unsettling cracks in the Treasury market and a slump in the US dollar.
Exemptions have been made for mobile phones, chip-making equipment, and certain computers. These account for about 20% of all US imports from China.
Uncertainty around tariffs has led to negative consumer sentiment and business confidence. Spending and investment decisions could be put on hold and these factors could weigh on economic growth from here.

Transcript

Hello and welcome to this week’s market perspectives. Once again, the focus is on Tariffs as we digest a chaotic week in financial markets with wild swings in equities and a dramatic sell off in US Treasuries and the US dollar.

Last week we discussed the reciprocal tariffs proposed by the Trump Administration. But the backdrop has changed once again after the announcement of a 90 day pause for reciprocal tariffs for countries that chose not to retaliate. This meant that the retaliatory tariffs were only in place for 13 hours before being paused. The 10% baseline tariff applied to all countries remains in place. However, one country that did retaliate was China and after various escalations we’re now at the point where there is a de facto blockade on trade between the two biggest trading partners in the world. The US is applying a total tariff of 145% and China applying a tariff of 125%. Combined trade between the two countries was $585 billion last year and China accounted for around 13% of the US’s imports.

So, let’s consider what caused the US to pause the implementation in what appears to be a considerable climbdown. The US Administration appeared comfortable with the pullback in equity markets, but cracks in the Treasury market were more unsettling and combined with a further slump in the US dollar. The issues in Treasury markets appear technical in that hedge funds were rapidly unwinding positions amid higher volatility and indeed as recently as January, US 10-year Treasury yields have been higher, but the speed of the move last week set alarm bells ringing. The loss of confidence in the US was also reflected in a much weaker US dollar and it does seem we are seeing something of a regime change taking place in the sense that traditional safe havens in US assets are no longer seen as such given the unpredictability of current US government policy. Investors have been seeking alternatives and despite prospects for a much a looser fiscal regime, German government bonds have performed particularly well, and the gold price has made new record highs.

There does not appear to be any underlying shift in the protectionist ideology here from the US, but countries can use this 90-day window to negotiate. The most obvious negotiating tool for other countries is to promise to buy more US goods. This tactic worked for China during the previous Trump administration where they managed to seal a trade deal that they never really followed through on in terms of increasing imports from the US. Over the weekend we did learn that exemptions would be made for mobile phones, chip making equipment and certain computers. These account for about 20% of all US imports from China. First off this is good news in the short term for companies such as Apple who make about 80% of iPhones in China but is likely to be only a short-term reprieve because the White House has made clear that these goods will be included in a tariff package on semiconductors to be announced in the coming months.

So, what comes next? Firstly, market volatility is unlikely to be over, with further headline risks likely. Markets will remain unsettled given how quickly we’ve moved between complacency and hysteria in the space of the past 10 days.

The situation we now face is that the world’s two economic superpowers are basically not trading with each other while the rest of the world faces at least 90 days of uncertainty. These factors are negative for consumer sentiment and business confidence and pose the risk that spending and investment decisions could be put on hold. This would weigh on economic growth until such time as there is greater clarity.

The next few days will see the start of quarterly earnings season. This should give greater insight into the fallout as companies assess the impact of tariffs and give forward guidance through the fog of a trade war. The downside risks to economic growth and corporate earnings are clear, but putting figures on forward estimates is incredibly difficult given the lack of policy certainty. Irrespective of the tariff policies the persistent uncertainty itself will detract from economic growth.

A positive take is that we now know the high watermark for tariffs. Also, there is a limit to the pain threshold of this Administration. Too many financial market dislocations – like we saw last week – will pressure the administration to change tack. For the US’s trading partners, the path of least resistance is to clearly negotiate rather than retaliate. The US and Chinese positions are becoming more entrenched but there is an opportunity for other countries to attempt to limit the impact firstly through negotiations with the US and/or by softening the domestic blow through fiscal measures.

Ultimately, we are now in a position that is far worse than most expected in terms of the tariff regime. Even if reciprocal tariffs are negotiated lower, we are likely to face the backdrop of a 10% global tariff plus specific levies on sectors such as autos. Tariffs for pharmaceuticals and semiconductors are yet to be announced.

While the effective US tariff rate is likely to be lower than the 20-25% range we discussed last week, it will still be well over 10%. Given that this was only 2.5% last year we’ve seen a huge move. For context – it has never moved more than 1% in a year during the period between 1970 to 2025. It is a huge disruption for international trade and impediment to global growth.

14 April 2025

2025年 April 14日

Key topics

Subscribe to insights

Get the most out of your email by tailoring the types of insights and information you would like to receive from us.

Latest articles

15 Apr 2025

2025年 April 15日

Democracy in decline: the impact on financial markets

World leaders are getting older and global democracy scores are falling. What are the potential outcomes for global markets?

14 Apr 2025

2025年 April 14日

Is the worst of the trade war already behind us?

The focus is on tariffs and their impact on financial markets, including wild swings in equities and a dramatic sell-off in US Treasuries and the US dollar.

9 Apr 2025

2025年 April 09日

Tariffs and credit markets

In the US, the Trump administration’s imposition of tariffs on imports from trading partners across the world has seen markets plunge. Here is what we are thinking as a credit desk and how we are approaching portfolios.

PDF

Is the worst of the trade war already behind us?

Important information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients).

This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority. In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws. In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore. In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058. In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association. In UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg. In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland. This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

Related Insights

7 April 2025

Multi-Asset

Anthony Willis

Investment Manager

How much uncertainty can markets stomach?

The tariffs are expected to significantly impact the global economy, potentially raising US inflation and reducing growth. Markets around the world have sold off sharply.

2 April 2025

Multi-Asset

Steven Bell

Chief Economist, EMEA

Tariff turmoil, German rearmament: where will it all end?

Despite geopolitical uncertainty, we expect the global economy to remain resilient. Europe’s economy could beat expectations, and we are broadly positive on equities.

31 March 2025

Multi-Asset

Multi Asset

Steven Bell

Chief Economist, EMEA

Passing the baton

Ahead of Steven Bell’s looming retirement we are pleased to introduce Anthony Willis, Senior Economist, as the new host of our weekly Market Perspectives video.

15 April 2025

Fixed income

fixed income

Gary Smith

Client Portfolio Manager, Fixed Income

Democracy in decline: the impact on financial markets

World leaders are getting older and global democracy scores are falling. What are the potential outcomes for global markets?

9 April 2025

Fixed income

David Oliphant

Executive Director, Fixed Income

Tariffs and credit markets

9 April 2025

Fixed income

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – April 2025

Our fixed income team provide their weekly snapshot of market events.

Important information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients).

Is the worst of the trade war already behind us?

Key Takeaways

Subscribe to insights

Latest articles

Democracy in decline: the impact on financial markets

Is the worst of the trade war already behind us?

Tariffs and credit markets

Important information

Related Insights

How much uncertainty can markets stomach?

Tariff turmoil, German rearmament: where will it all end?

Passing the baton

Democracy in decline: the impact on financial markets

Tariffs and credit markets

In Credit Weekly Snapshot – April 2025

Important information

Please confirm a few details about yourself to visit your preference centre

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

CT Property Trust- Fund Manager Update