The Implications of the April 2025 Trade Tariff Shock

Two big new facts emerged:

1. The tariffs, as announced, are unbelievably illogical. Economists were in disbelief. You can read Nobel prize winner Krugman or listen to Bloomberg News's renowned commentator John Authors. This all leaves no doubt that a rule-based trade system is being replaced at a breathtaking pace by a negotiation-based-me-first one. See, for example, the eloquent PM of the free trade nation Singapore.

2. Trump has responded initially by neglecting the market downturn. Instead, he was calling on his supporters and arguing that some pain is necessary. This made markets question whether his motives have shifted fundamentally. We see a risk of much bolder anti-democratic moves. We now look ahead to the mid-term US elections in November 2026 and are no longer certain the institutions will survive intact. You can also read one of the best analysts of all time, Ray Dalio (founder of hedge fund Bridgewater), on the turmoil we will face.

Yesterday, Trump rolled back his tariff announcement for 90 days, except for China, the largest trading partner of the US, which saw its tariff increased to over 100%. But the problem is that the announcement itself, and its arbitrary nature, are already starting to create havoc, especially by reducing investments by companies that export to the US.

We still see a global recession as possible. The US imports 4% of the world’s output. It will drop by at least a quarter if all is said and done, and this will have knock-on effects through job losses, and corporate bankruptcies.

While many people believe the so-called Trump put--that he checks the stock market and will steer his policies to avoid a decline--we have some doubts. Yes, in the end, tariffs won't increase by that much and that steeply, but they will rise. Given that this is costly for the world economy, stock markets have to adjust. So we don't see a reason for a full rebound as experienced on Wednesday.

How did markets move?

Stocks erased over a year in gains since Trump took office, before clawing back one-third of the losses. Indeed, as we write, some of the euphoria of Wednesday evening is slipping away and making way for realism. Note also how much volatility shot up. 

The bond market also whipsawed and signalled by shooting up on the announcements that it believed the tariffs would lead to US inflation, something that might cost Trump the mid-term elections.

How should you position yourself?

1. Is this a long-term game changer for the US? We don’t think it is yet. But chances have increased rather substantially that it leads to the undermining of the democratic institutions in the US--which are a condition for its stability and success. 

2. We always argue against market timing. Don’t try to buy on dips. It is extraordinarily hard. The market says: don't try to catch a falling knife. Do expect serious turbulence until at least the US mid-term elections in November of next year.

3. If your investment largely consists of a monthly savings amount that is gradually leading to bigger positions, over the long term, you will want to stay the course and ignore all the noise. This turmoil may reduce long-term returns on stocks, but for now, they still outweigh bonds by far. Stocks remain the way to go for long-term investments.

4. If you have larger investments, if you feel less secure about your job, you should take a harder look. In any case, if you cannot stand the risk, do move part of your portfolio into bond ETFs. 

5. The market is likely to see some rebounds. Monday, April 7, we saw a massive short-lived rebound, and Tuesday, a somewhat bigger one. Wednesday, a 10% rebound. You could use rebounds to make the shift. 

6. Shifting into European stocks is possible, but you won't escape the international turbulence. 

7. Real estate in Europe can benefit from lower interest rates, but don’t expect strong price increases as economic uncertainty will also dampen demand. Rental properties with good locations that benefit from large tax subsidies remain relatively attractive.

If you’re concerned, let us know—if you have a portfolio, we can review your risk level, and if not, what an appropriate portfolio would look like for you.