Tangible panic in credit markets after ‘Liberation Day’ saw US president Donald Trump issue a 90-day pause on reciprocal tariffs on 9 April 2025. This leaves us with a 10% universal tariff coupled with a massive 125% tariff on China.
While Trump may have stepped back from the edge, these numbers still imply a weighted average tariff of 25%.
Our view remains that the final act is still yet to be written. Tariff ping pong between the US and China continues with both presidents Trump and Xi Jinping indicating they are unwilling to back down, though one suspects a deal can be made such that both can claim victory. Failing that, it's hard to see how a global recession can be avoided.
How Europe responds is also critical. If the bloc chooses to extend the existing Digital Services Tax, it will be very damaging to US mega-cap tech stocks.
Most North American trade is in intermediate goods, heightening the risk of supply chain disruptions, as well as the risk of upward pressure on inflation on top of lower economic growth.
A weaker currency in the face of tariffs will also feed into inflation, more so than what was experienced during the first round of Trump tariffs in 2017 where the dollar remained stronger.
Estimates suggest that, all else equal, a 25% tariff could add almost 2% to core personal consumption expenditures (PCE) inflation, which is currently running at 2.8%.
Business and consumer confidence will continue to remain weak while uncertainty around tariffs and the unpredictability of the Trump administration continues. Add in the Department of Government Efficiency’s (DOGE) potential spending cuts, which could see a significant tightening in fiscal policy in the US, and uncertainty and pressure on growth ratchets higher again.
The risk remains that Trump’s shock therapy approach to re-industrialisation is just too much for the US or global economy to bear and the US stumbles into stagflation.
Despite this, the starting multiple of US equities is still 21x earnings and tariffs are yet to be factored into bottom-up forecasts. Asset prices will not only be impacted by earnings per share downgrades but also a higher discount rate will inevitably be applied to compensate for Trump’s irrationality.
We have seen this playbook before in China where policy became unpredictable with president Xi's ‘Common Prosperity’ programme.
While policy uncertainty is widening in the US, it's arguably narrowing in Europe and China. Net exports to the US account for about 2.5% of Germany and China’s GDP – at least some of this will be offset by fiscal stimulus. Furthermore, the US accounts for only 6% of China's total imports.
Germany's announcements around defence and security and its €500bn infrastructure fund equate to a total fiscal boost of 3% of GDP per annum. China hasn't made the same definitive announcements but the direction of travel is clear.
The wide range of outcomes means there will be opportunities for active managers to take advantage of market distortions. We began to position our funds more defensively from the middle of February and given the degree of policy uncertainty it makes sense to continue to lean defensively – but we do see pockets of opportunity.
One of the largest holdings in our portfolio is Barrick Gold. We think the gold price can be resilient in a hard or soft landing, with demand underwritten by central banks diversifying away from dollar-denominated assets.
If the economic outlook weakens, we expect retail investors to come back to gold, having drawn down their holdings over the past three years. At current spot price, Barrick is still priced on a sub 10x multiple with volumes expected to accelerate as production ramps back up.
We've been buying utilities in Western Europe, high-quality consumer exposures in China that will be stimulus beneficiaries (such as China Resources Beer).
We also think Latin America could emerge as a relative winner. Mexico is firmly at the negotiating table and the reality is low-end manufacturing isn't going to come back to the US – but it could come to Mexico or South America.
Brazil is one of the very few countries out of the firing line as the US has a trade surplus with Brazil. Further, if we see a repeat of 2017, China can shift demand for agricultural products from the US to Brazil, further supporting its domestic economy.
It's possible that the unintended consequences of Trump's policies could make ‘the rest of the world great again’.
If conviction increases that the growth shock is real, we will continue to lean into the defensive allocations in our portfolio. But we don't want to get too bearish. The US Federal Reserve could reverse quantitative tightening, there will be some stimulus out of the US as tariff revenue is recycled into tax cuts, and we will see stimulus out of Europe and China.
Given such extreme policy uncertainty, investors must be thinking about tail risk protection in their portfolios to mitigate against unexpected drawdowns.
More broadly speaking, we think the days of US mega-cap exceptionalism are waning. The market can continue to broaden via regional shifts (driven by this change in fiscal impulse) and sector and style shifts (driven by the democratisation of artificial intelligence and a broad infrastructure-led investment cycle).
Alison Savas is an investment director at Antipodes Partners. The views expressed above should not be taken as investment advice.