Tariffs, tariffs, and more tariffs: decoding the market’s reaction to U.S. trade policy
"Liberation Day" has come and gone, yet markets are still grappling with the aftereffects of the U.S. administration’s proposed tariff plan. With the paradigm for global trade seemingly undergoing a monumental shift, what challenges lie ahead for markets? How do we sort through market ups and downs with a level head? Let’s talk tariffs and weigh in on the implications of these unprecedented policy moves.
President Trump unveiled sweeping tariffs on virtually all major U.S. trading partners—and markets didn’t exactly take it with a grain of salt. Customized tariff rates (well into the 40% range in some cases), coupled with a baseline tariff of 10% on many countries, revealed the tremendous scope of the April 2 announcement.1 A broad-based sell-off across global markets ensued as investors recalibrated their expectations, but markets were given some reprieve just days later (April 9) when implementation of most tariffs were delayed for 90 days. Are tariff threats here to stay or are they being used as a tactic to get concessions at the negotiation table?
The U.S. administration announces and pauses most tariffs
Partial list of reciprocal tariffs on some U.S. trading partners
Region |
Tariff rates announced on April 2 |
New tariff rates after April 9 |
European Union |
20% |
10% |
China |
34% |
145% |
Japan |
24% |
10% |
Vietnam |
46% |
10% |
South Korea |
25% |
10% |
Taiwan |
32% |
10% |
India |
26% |
10% |
U.K. |
10% |
10% |
Switzerland |
31% |
10% |
Thailand |
36% |
10% |
Malaysia |
24% |
10% |
Brazil |
10% |
10% |
Singapore |
10% |
10% |
Afghanistan |
10% |
10% |
Albania |
10% |
10% |
Source: Manulife Investment Management, White House, as of April 12, 2025. List is not comprehensive and excludes other trading partners, including Canada and Mexico.
While nobody knows for certain how all this will end, investors clearly underestimated the magnitude of the measures that were announced on April 2. Even though President Trump was essentially elected on a tariff mandate, the administration’s handling of some of the initial tariffs imposed on Canada and Mexico (i.e., delays or waivers on parts of these tariffs) led markets to believe the new round of tariffs would be delivered on a smaller scale. Subsequently, markets also soared on the heels of President Trump’s announcement that he was pausing tariffs, highlighting the current fragility of market psychology. Whatever the outcome, our focus is to prepare and not predict, and we’ll do so by taking a step back to analyze what this all means for market participants.
At times like these, temperament matters as much as analysis. The temptation to react impulsively—to slam on the brakes or to accelerate too quickly—can be costly. While transitions create uncertainty, they also generate opportunity for those who remain clear-eyed.
How is all of this affecting the economy and businesses?
Many economists agree that free trade is additive to global GDP growth. As such, under this belief, any tariffs would pressure global growth.
Tariff uncertainty has begun to impact U.S. consumer sentiment and we've heard anecdotally that corporations are delaying investment decisions. If corporations begin to invest less, we would see fewer new factories being built and less spending on research and development initiatives. That generally means less money flowing down to workers and less projects being started.
Assuming all of this is a genuine push to rebalance a U.S. trade deficit, a lack of confidence generally caused by the instability of these tariffs should not only lead to lower business investment but lower consumer sentiment as well. Of course, there's also the wealth effect. American consumers that are also invested in the U.S. stock market may eventually start to pull back or delay general spending if they see the value of their portfolios come down.
Assuming all of this is a genuine push to rebalance a U.S. trade deficit, a lack of confidence generally caused by the instability of these tariffs should not only lead to lower business investment but lower consumer sentiment as well.
What does this mean for our portfolios?
In times of heightened uncertainty, our more competitively advantaged companies should not only be more defensive, but also potentially gain market share as supply chain and cost uncertainty increases. Our portfolios are built with inherent contradictions so that they continue to create wealth fundamentally in many different scenarios, including ones with trade uncertainty.
At times like these, temperament matters as much as analysis. The temptation to react impulsively—to slam on the brakes or to accelerate too quickly—can be costly. While transitions create uncertainty, they also generate opportunity for those who remain clear-eyed.
The road ahead will have its twists, but our approach remains the same: prioritize resilience over reaction and discipline over distraction. Our North Star: a focus on attractively valued, well-run businesses that can withstand turbulence by, quite simply, selling a good or a service their clients value at a price that more than covers the cost of capital by virtue of a competitive advantage, thereby creating wealth.
1 White House as of April 2, 2025.
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