Stock market indices have fallen over the last 24 hours on the widely expected introduction of trade tariffs by the US, mainly directed at China, to come into effect in around a month’s time (after a ‘comment period’), meaning that the uncertainty caused by these moves may be prolonged.
From the details that have emerged, the tariffs will likely affect $50bn worth of imported goods and the proposed tariff level will be 25%, which the White House believe will be sufficient to block trade in the affected areas. The list of specific goods to be targeted will be released early next week but will include aerospace, information communication technology, and machinery. The tariffs themselves will not have a fundamental impact on China (initial estimates show this would affect around 0.25% of China’s GDP), but the larger worry is over the potential escalation of these measures and a descent into a ‘trade war’.
It is expected that China will impose retaliatory measures against US exports relatively soon, but there are no details of what this may entail at present. Angela Merkel has also stated that EU retaliation may still occur and the previous targeted goods from the US by the EU included whiskey, jeans and motorcycles.
Our Investment Model Portfolios have held up considerably better than most stock markets so far this year, but the full impact of the latest falls in assets will emerge over the next few trading days. Our structurally diverse portfolios do include moderate amounts of some of the areas that have reacted most strongly, such as Japan and China, but we believe we remain well positioned for market turbulence. As we noted In January, economic and corporate progress remain fundamentally solid in most areas of the global investment landscape, and these should hold against short-term setbacks, assuming that these punitive measures do not escalate too far.
Details will be key and the short-term impact of tariffs will not be known until next week, when we will reassess and be in touch again as necessary. As ever, we remain ready to make changes to portfolios if we believe that the situation requires them.
If you have any concerns over these issues or your investments more generally, please do not hesitate to contact me or your adviser.
Tom Sparke IMC CertPFS (DM)
GDIM: Discretionary Fund Managers