A group of barren, uninhabited volcanic islands near Antarctica – the Heard and McDonald Islands – both covered in glaciers and home only to penguins, had a 10% tariff on goods imposed on them yesterday by Trump’s executive order. This, despite no human visitors in nearly 10 years…so goes the US’s new tariff agenda.
The “reciprocal” tariff policy announced was unprecedented in recent history and imposes a weighted average tariff rate of 18.3%, raising the effective tariff rate to levels not seen since the pre-war period when the Smoot-Hawley Tariff Act was introduced. A reminder that Smoot-Hawley is often cited as a major trigger for the ensuing Great Depression (see chart below), which was only relieved by the onset of the Second World War.
Source: Bloomberg, April 2025
Given that only roughly one-third of total imports would be exempt, this reduces the tariff impact to a 12.6 percentage point increase in the effective tariff rate. While negotiations with trading partners could well lead to somewhat lower “reciprocal” rates than announced today, the prospect for escalation following retaliatory tariffs and a high probability of further sectoral tariffs suggests a risk that the US effective tariff rate rises further.
Source: Goldman Sachs, 2025
Our View
These tariffs have gone well beyond what was priced in for most regions (ex-India). There are still a few days before they come into effect, so some are questioning whether this provides a (short) window for negotiation. But at this point, that may be more hope than reality from groups that believed Trump would never go this far. More likely, we are entering a tit-for-tat escalation.
It is also interesting to note that the tariff rates set yesterday appear to be perfectly correlated with US bilateral trade deficits (chart below). This implies that the goal is simply to reduce such deficits – an election promise made by Trump. If so, it lessens the likelihood that any negotiations will be forthcoming.
Source: Exante Data
What does this mean for global markets?
Japan
Often seen as a geared play on global growth and has thus been hit quite hard as recession risks rise. Banks are particularly weak, as weaker economic conditions challenge the Bank of Japan’s (BoJ) ability to raise rates.
India
India appears to have come out “well” from yesterday’s developments, confirming the assumption that it is a safe port in a tariff storm. That has worked against it somewhat, as tariff fears have receded year-to-date, but could now act as support. No incremental adverse impact on export sectors (IT services, pharma, autos). Reciprocal tariffs at 27% are unhelpful, but India is a relative winner within Asia. The market was only off -0.3%. However, there were big internal moves – IT services (a proxy on US corporate spend) down significantly, pharma up sharply. There had been major concerns on both, but the negative US outlook is overwhelming any relief rally for IT & pharma.
Interestingly, after a period of relative weakness, the Indian market is trading well and has begun to show signs of relative strength versus China and Japan.
Latin America
Latin America is relatively insulated and sits at the low end of the tariff spectrum – all countries are at the base 10% rate, with Mexico (and Canada) continuing to benefit from USMCA exemptions. While a global recession would clearly not be helpful, the region has been supported by a weaker US Dollar, which is helping to lower domestic inflation expectations and could allow for additional rate cuts, or earlier cuts in Brazil’s case. The Mexican Peso (MXN) is up 2%, and stimulus is expected to follow once tariffs are in place, which may partly explain the region’s resilience.
Overall, Latin America should fare well on a relative basis given its greater exposure to China than to the US. If China responds with more stimulus, it could offset some of the negative tariff impact. For Mexico, attention is focused on the renegotiation of the USMCA, which is likely to begin ahead of schedule (previously set for next year). While Trump has repeatedly criticised NAFTA, he has not addressed its replacement, USMCA, which he signed during his first term. MSCI Mexico is up 2% pre-market, largely driven by peso strength, and Mexico's competitive position versus Asian exporters has improved further.
China/Asia
The 34% tariff is higher than expected, up from the 20% announced in February and March. It also includes imports from Hong Kong and Macau. Exporters are being hit as expected, but domestic names in China are largely flat today – encouraging, with the presumption being that the next leg of consumption stimulus will follow after the tariffs are in place, contributing to the resilience.
Most of the US’s Asian trading partners are facing higher-than-expected tariffs, including Vietnam (46%), Taiwan (36%), Thailand (36%), and Indonesia (32%). Sports apparel brands that manufacture in Vietnam, such as Lululemon (-10%) and Nike (-6%), are being heavily impacted.
Gold
Gold benefits from safe-haven demand and acts as a hedge against inflation. The tariffs add friction to global trade flows and will increase inflationary pressure. The weaker US Dollar also helps stimulate gold demand. Gold remains on a strong upward trajectory, and we see no reason for this to change following these announcements.
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Past performance does not predict future returns. You may get back less than you originally invested.
We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.
The Funds managed by the Global Equities team:
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