Brutal round of trade top Trumps sends shivers through global markets
Susannah Streeter, head of money and markets, Hargreaves Lansdown:.”A brutal round of trade top Trumps is sending a shiver through global markets. As threats have turned into facts, the plan for blanket tariffs on US trading partners has unnerved investors. As Trump has ripped up trade norms, it’s spread fresh worries about the implication for the global economy. Futures trades indicate a sharp fall for the S&P 500 with other indices around the world looking set to follow suit.
A baseline 10% tariff is the starting point, with 20% tariffs set to land on imports from the EU, and much steeper duties imposed on countries in Asia with China facing 34% duties. There will also be 25% tariffs slapped on foreign made cars sold in the US.
The UK may appear to have been dealt a better hand compared to some nations, but given it’s so intertwined with the global economy, a drag on growth looks inevitable. The government is taking a pragmatic approach, and hoping for a trade deal, which may alleviate more of the tariff burden, but the outcome is uncertain.
Although there will be some hopes that now more detail about the widely trailed tariff plan is out in the open, it will provide more clarity for economic forecasts, business strategy and investment decisions. However, it’s still unclear to what extent other countries may retaliate with tariffs, and how the trade war could still escalate. There is also a lack of certainty as to damage to consumer sentiment and growth prospects both in the US and the global economy. Also, given Trump’s record of changing policy seemingly on the hoof, there is still the potential for further upset to come. While there will be relief the plans have not unleashed a fresh round of selling, market movements are likely to stay in a zig-zag pattern.
Gold prices have been creeping up again today, and they are set to climb higher as fear spreads about the knock on effect of the US trade policy. The gold rush looks set to continue as investors seek safer havens for their money amid the uncertainty.
It’s important that during times of volatility eyes are kept on long-term investment horizons. Investors should ensure they are well diversified, without too much concentration on a particular market, and with money spread across different asset classes and geographies. Time in the market and diversification have consistently been the foundations of successful investing strategies. For investors owning quality companies over the long term, big bumps in the road are part of the journey.
The strategy of drip-feeding investments by gradually allocating funds can also help mitigate risks and can pay off in uncertain times. It means investors may be able to take advantage of lower prices and benefit during a recovery, to help smooth out sharp market movements over the longer-term.”