Last week, global markets experienced renewed volatility following a sharp and unexpected escalation in U.S. trade policy. On 2nd April, the Trump administration announced sweeping tariffs on the imports of more than 180 countries, including a 34% additional tariff on all Chinese imports—a move far more aggressive than anticipated. Within 48 hours, China responded with a matching 34% tariff on U.S. goods. Canada has also taken retaliatory action, while the European Union has signalled potential countermeasures if negotiations falter.
What We Believe the U.S. Is Aiming to Achieve
In our view, the administration’s actions serve several strategic purposes:
- Reshore key industries by encouraging domestic manufacturing and reducing reliance on global supply chains
- Use tariffs as leverage in upcoming trade negotiations
- Increase government revenues to address fiscal imbalances without raising direct taxes
- Cool inflation by slowing economic activity, thereby giving the Federal Reserve scope to eventually reduce interest rates and ease the government’s rising debt-servicing costs
We believe this is a deliberate short-term shock, not a long-term policy reset. The intent appears to be forcing trading partners to the negotiating table. Over time, we expect a partial easing of tariffs, rather than full removal.
This strategy is consistent with Trump’s political playbook: implement the most disruptive measures early in the term and create space for recovery before the November 2026 U.S. midterm elections. As we move closer to that date, we anticipate more market- and economy-friendly policies, including:
- Moderating inflation
- Lower interest rates
- Tariff reductions from current levels
Possible Scenarios Going Forward
We are monitoring three key potential outcomes:
- Negotiated Rollback (Most Likely)
Trump has historically walked back aggressive stances once leverage has been achieved. This may follow the same pattern, especially under political and market pressure. - Congressional Pushback (Less Likely)
While technically possible, a Congressional override would require a two-thirds majority—a high bar that would likely only be met under substantial economic strain. - Democratic Midterm Victory (Low-Probability, High-Impact)
A decisive Democratic win in 2026 could bring legislative efforts to dismantle these policies, but only if the economic fallout becomes sustained and widespread.
Market Reactions So Far
- Equities: Global equity markets have seen corrections due to trade tensions
- Bonds: Yields have fallen as investors seek safer assets
- Gold: Has softened slightly after significant gains earlier this year
Our Outlook
We view this as a manufactured political and economic crisis, rather than a systemic one. The administration appears to be front-loading disruptive policies to give itself room to adopt more constructive ones later.
Importantly, we expect stimulus measures from other countries—whether fiscal or monetary—to help cushion the impact of tariffs. These collective efforts should support global liquidity and asset markets.
That said, we also recognise that some developments may reflect longer-term structural trends. Deglobalisation, growing geopolitical polarisation, and a shift towards economic self-reliance are likely to remain part of the global backdrop for the foreseeable future. These shifts could influence everything from global supply chains to inflation dynamics and capital flows—and we are factoring them into our portfolio positioning accordingly.
As such, while we expect the environment to become increasingly market-friendly as we approach the end of 2026, we are also mindful of the evolving structural landscape and the need to remain adaptable.
Portfolio Strategy
Periods of disruption often lead to opportunity. While short-term volatility may persist, we believe the medium-term outlook is more constructive, particularly if tariffs are eased and coordinated policy support emerges.
At the same time, we are incorporating more strategic resilience into our investment approach—positioning portfolios to navigate not only cyclical shifts but also longer-term global transformations.
As always, we are actively monitoring developments and adjusting our strategy as needed. We remain committed to helping you navigate these changes with clarity and confidence.
With thanks for your continued trust,
Unicorn InVesCo
