By Brian Byrnes, Head of Personal Finance at Moneybox

 

What has happened?

On Wednesday 2nd April, President Trump announced ‘reciprocal tariffs’ on all of America’s trading partners. A 10% baseline tariff will be applied to all goods imported into the US, with many countries facing significantly higher tariffs when exporting to the US.

The American administration is particularly targeting countries with ‘trade deficits’ with the US — i.e. countries who export far more goods to the US than they import. President Trump believes this to be unfair, and these tariffs are his attempt to rebalance global trade in favour of the US.

 

How have markets reacted?

While the tariff announcement had been widely anticipated, the scale of the tariffs announced surprised markets. ‘Reciprocal tariffs’ were expected to match those imposed by other countries — i.e. if you charge the US 15% on imports, the US would charge you 15% in return.

The Trump administration has gone much further, planning to implement tariffs of 20% on goods from the European Union, 34% from China, and 46% from Vietnam. For many countries, these new tariffs come on top of existing barriers. In the case of China, the total import tariffs will add up to 54% – as the new 34% will be added to a 20% tariff already in place.

It’s very likely this will significantly impact costs for US consumers and businesses whose supply chains rely on overseas imports. As a result, on Thursday 3rd April, US markets fell sharply, suffering their worst day since the Covid crisis in March 2020.

 

What can investors do?

All investors should be investing with a minimum five-year time horizon. In that case, you shouldn’t make adjustments to your portfolio based on short-term market noise. The reason this five-year horizon is so important is that it allows you to ride out periods of volatility like this one.

Negative market movements can feel unsettling; nobody enjoys seeing their investments decline in value. However, this is a normal part of investing, even when the news triggering the volatility feels abnormal.

This tariff story still has a long way to run. President Trump has previously announced, but not implemented, many tariffs since taking office. He has already suggested that these new tariffs may be avoided through trade deals negotiated with individual countries.

As such — and as difficult as it may be — the best approach for investors is not to make any short-term decisions based on this week’s volatility.