Global Markets Overview: April 2025

On this day. President Trump announced a comprehensive reciprocal tariff policy on imports to the US from all countries. Starting April 5, a baseline tariff of 10% was applied to imports from all countries except Canada and Mexico, which already face 10% to 25% tariffs on goods that are not covered by their free trade agreement with the US.

Additionally, higher country-specific tariffs linked to the US trade deficit with US's trading partners were set to begin on April 9. But these country-specific tariffs were later paused for 90 days for all countries, except for those in China.

Our chart shows just how significant these new tariffs are. The tariffs announced on April 2 were more extensive than we expected. And collectively, all the tariffs announced this year have pushed the effective tariff rate in the US from 2.3% last year to the highest levels in a century.

While some tariffs are paused, more sector-specific tariffs are expected soon. The rapid changes in US trade policy, responses from trading partners, like China, and ongoing uncertainty have all increased market volatility. For example, the US equity index, S&P 500, dropped over 20% from its February peak at one point, but then rallied almost 10% in one day just a few trading days later on announcement of a 90-day pause.

Amidst these sharp moves, here's what we think are important considerations for investors. Firstly, the ultimate size scale and the scope of tariffs are not yet clear, but they are expected to represent a notable increase in effective tariff rates on imports into the US. Over the next few quarters, the sharp increase in tariffs is expected to raise the prices of goods in the US and slow US economic growth as a result of weaker consumption and investment.

Compounded by ongoing policy-related uncertainty, this increases the risk of a recession. We still believe the US will avoid a recession this year, though it will likely grow at a much slower pace. More importantly, while tariffs are challenging for the economy in the near term, the full suite of policies will matter most over the next three to five years. This includes trade and tariff policies, but also fiscal, monetary, and regulatory policies.

The Trump administration has flagged several other priorities, including lowering taxes for corporates and households, deregulating all major industries, reducing government spending while boosting private sector investment, and improving fiscal sustainability. If these policies are implemented and executed well, they could lead to sustainable improvements in areas such as US productivity, incomes, and wealth, and lower inflation in the medium term.

We see these as positive catalysts in the next few years. The risks to economic growth conditions remain in the coming quarters. In the current market environment, we believe a balanced, well-diversified portfolio with selective downside risk hedges and active management is the best way to navigate high uncertainties in the short term.

This approach also sets the foundation to benefit from pro-growth US policies as they unfold in future years at cheaper equity valuations. For a deeper dive into the recent price action and our insights, check out our latest global markets overview.

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