What’s happened?
The US initially imposed tariffs of at least 10% on a sweeping list of countries. Some countries perceived to have particularly high imports into the US faced higher tariffs - 34% for China, 46% for Vietnam tariff and 20% for European countries, for example. China, Canda and the European Union imposed their own tariffs. The US imposed additional tariffs in response.
A week after the announcement, the US reduced the tariffs for all countries to 10% for 90 days with the exception of China, which faced another increase.
What was the impact?
Stock markets sold off around the world with most exchanges giving up their gains of the past year. The price of oil also fell as fears of a world recession increased. More volatility is expected despite the temporary de-escalation in tariffs, with investors listening intently for further comments from President Donald Trump.
What are the other impacts?
Many details about countries' longer-term tariff policies are still unclear so it’s uncertain how all this will impact economic globalisation which has been one of the drivers of the strong performance of stocks over the past several decades, particularly in the US. It has also helped keep inflation low even as the US economy has continued to grow.
It is possible that companies will pass on the cost of tariffs in the price of goods, stoking inflation. Consumers may therefore spend less and economic growth may slow.
There has also been an increase in the yield on US government bonds. Market traders would normally expect a fall during market turbulence. This is because US bonds, or Treasuries, are regarded as a safe haven. Much of American government debt is owned by overseas investors with China and Japan the biggest holders.
What about interest rates?
The rising chance of recession should spur central banks to cut interest rates. Before the turbulence markets were pricing in two rates for the Bank of England in 2025. A week later, they were forecasting a fall from 4.5% to 3.5%.
Why is the US imposing tariffs?
The US imports about $4 trillion in goods and services annually. That’s about 2% of a $30 trillion economy. The US administration believes local manufacturing is undermined by cheap imports and is acting to discourage importers. Other countries have criticised the tariffs, arguing that global trading rules were fair and followed.
What next?
It's important to remember that economic growth and corporate profits have historically been far more important for financial market performance than shifts in government policy and these have remained positive despite anxiety-producing rhetoric and headlines.
What investors can do
Of course, it's only natural to be concerned when the market experiences fluctuation. It's important to take a long-term view of your investments and review them regularly to make sure they line up with your time frame for investing, risk tolerance, and financial situation. Ideally, your investment mix is one that offers the potential to meet your goals while also letting you rest easy at night.
Over longer-term horizons, shares tend to offer the best returns, so those some way off retirement should not be overly concerned by falls. They also create opportunities to buy assets cheaply. For those closer to retirement, most company pensions offer a life-styling fund option that moves your money into less risky investments with the aim of minimising the impact of market volatility.
Important information - This is based on our interpretation of recent market events. The views are reliable at the time of writing, may not be all-inclusive and accuracy are not guaranteed. They may be subject to change without reference or notification to you. If you need advice about how any of this information applies to you personally, you should contact an authorised financial adviser.