Liberation Day tariffs - 3rd April 2025

Trump announces new tariffs

Last night, President Donald Trump announced sweeping tariffs that will reshape trade relationships with the United States. The new tariff regime is more severe than expected, and extraordinary both in terms of scale and how they were calculated.

Trump announced a baseline 10% tariff on all countries, and higher rates for certain regions. These higher rates exceeded expectations. Asia, particularly China and Vietnam, face the largest increases. European tariffs were broadly in line with expectations, with 20% on the EU and 10% on the UK.

The table below shows what last night’s announcement means for various countries. Source: BBC, JPMorgan, LGT The announcement has elicited strong reactions both domestically and internationally, although we have not yet seen retaliatory moves by affected countries. In theory, the baseline tariffs do not come in to effect until 5 April, with any additional reciprocal tariffs due to come in on 9 April. This allows for negotiations, and hopefully, the US will accept concessions before, or soon after, some of these tariffs come into effect. We have seen Treasury Secretary Scott Bessent urge countries to not retaliate, even suggesting these countries come to the negotiating table. No one wants a full-blown trade war, which would send trade volumes down, strain global growth further, increase inflation and ultimately lead to a recession. This would complicate central banks’ future rate cuts further.

The extent of the impact will depend on how the world reacts in coming weeks. Economists estimate US GDP could reduce by 1-to-1.5% over the next 12 months and expect inflation could rise by around 1%. Global growth GDP could reduce by about 0.50%. These forecasts and concerns are directly impacting risk assets.

Equities

Equity markets have seen a risk-off reaction to Trump’s tariff announcement, with all major US indices futures signalling a lower open later today, between 2-to-4% lower, depending on the index. Overnight Asian markets saw quite diverse moves. Vietnam lost over 6%, Japan around 3%, and China under 1%. We do expect heightened volatility in coming weeks as news evolves. The biggest impact today appears to be in the currency markets, where we have seen the US dollar sell off versus the pound, euro and yen by 1-to-2%. Uncertainty over tariffs, along with concerns about the impact on US growth, mean the dollar has lost its safe-haven status for now. This is unusual, as historically, when we go through periods of heightened market volatility, the dollar usually rallies, which helps our portfolios as our equity exposure tends to be unhedged. So far this year, the dollar index is off over 6%.

Defensive sectors are outperforming with sectors such as utilities and consumer staples are holding up, along with real assets. The sector facing the biggest drawdown is energy, as oil prices are down over 5%.

Fixed income

Bond yields have fallen as the market digests the impact of tariffs. Short-dated bonds are outperforming, with growth risks driving investors to increase the odds of rate cuts. Ten-year Treasury yields are down 8bps to 4.05% with similar moves seen in bunds, gilts and Japanese government bonds. Shorter-dated gilt yields are seeing the biggest moves with two-year gilts down 0.13% to 4.04%. Yield curves have steepened as longer maturity bonds underperform, given concerns about longer-term inflation. Perhaps the most notable move is in the gold price, which is down around 2% after the strong run over the first quarter.

LGT WM Model Portfolios

Trump’s latest tariffs have understandably sent ripples through the market. We are closely monitoring the currency impact, particularly given our US dollar exposure. Currency movements will likely be a key factor in short-term performance data, but they tend to mean revert over time. Sterling has strengthened as the UK has come out of it well, while US assets have felt the immediate pressure. That said, our portfolios are built with resilience in mind. Our allocation to quality businesses – those with strong pricing power for example – means they are well-positioned to pass on higher costs, softening the impact of tariffs over the long term.

In the short term, market reactions can be sharp, but the bigger picture matters more. Defensive assets such as gilts and broader resilience in consumer defensives / staples will provide balance. While some areas have struggled, particularly US smaller companies, Trump’s ‘America First’ stance aims to protect domestic businesses. Although there may be a difficult period for these companies from the rise in costs, ultimately, he is trying to protect these companies in the long run. Our position in smaller companies is a long-term trade and what happens in the next few days is less important than what happens in the next few years.

The Magnificent 7 have taken another leg down and extended their losses this year. These businesses should prove relatively resilient to Trump’s tariffs and we may look for another opportunity to increase exposure.

We appear to be in peak ‘tariff hysteria’ so now is not the moment for rash decisions or big moves. If these tariffs were to remain at these levels it would likely be negative for growth and could cause an inflationary spike. Both would be a challenge to risk assets. That said, it is hard to say how much tolerance for market disorder the current leadership have however thus far they have shown they are prepared to let the market fall a bit. We are watching calmly from the sidelines.

It is too early to say anything definitive about fund performance, so we will continue to keep you updated on the movements there. We have discretionary powers to act if we need to and we can make changes and rebalance portfolios within a day or two. However, we are currently comfortable with our positioning and will wait to see how markets react over the coming days and weeks.

Conclusion

The LGT Central IC meets on Tuesday 8th so we will assess our positioning and what changes we may need to make as a result of last night’s announcement. As geopolitical tensions continue to ramp up, understanding their financial implications will be crucial for investors. Rising uncertainty, coupled with strategic decoupling and emerging power dynamics in the Global South, presents both challenges and opportunities. By embracing a diversified investment strategy that accounts for regional and sectoral distinctions, investors can better navigate this complex landscape and position themselves for success in an uncertain world. We believe that by being nimble, active and highly selective within our regional allocations, keeping focused on the long term and investing alongside a collection of the best-in-class regional fund managers, we are well placed to benefit from dispersions in returns between different companies, regions or sectors despite geopolitical uncertainty.

Source: LGT Wealth Management

LGT Wealth Management UK LLP is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales: OC329392. Registered office: 14 Cornhill, London, EC3V 3NR. LGT Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in Scotland number SC317950 at Capital Square, 58 Morrison Street, Edinburgh, EH3 8BP. LGT Wealth Management Jersey Limited is incorporated in Jersey and is regulated by the Jersey Financial Services Commission in the conduct of Investment Business and Funds Service Business: 102243. Registered office: Sir Walter Raleigh House, 48-50 Esplanade, St Helier, Jersey JE2 3QB. LGT Wealth Management (CI) Limited is registered in Jersey and is regulated by the Jersey Financial Services Commission: 5769. Registered Office: at IFC1, The Esplanade, St Helier, Jersey, JE1 4BP. LGT Wealth Management US Limited is authorised and regulated by the Financial Conduct Authority and is a Registered Investment Adviser with the US Securities & Exchange Commission (“SEC”). Registered in England and Wales: 06455240. Registered Office: 14 Cornhill, London, EC3V 3NR. This publication is marketing material. It is for information purposes only. Certain services described herein are not available to retail clients as defined by the FCA or the JFSC, as applicable; please speak to your investment adviser for further clarification in this regard. All services are subject to status and where local regulations permit. The wording contained in this document is not to be construed as an offer, advice, invitation or solicitation to enter into any financial obligation, activity or promotion of any kind. You are recommended to seek advice concerning suitability from your investment adviser. Any information herein is given in good faith, but is subject to change without notice and may not be accurate and complete for your purposes. This document is not intended for distribution to, or use by, any individual or entities in any jurisdiction where such distribution would be contrary to the laws of that jurisdiction or subject any LGT Wealth Management entity to any registration requirements. When we provide investment advice it is on the basis of a restricted approach that is to say, whilst we review and advise on retail investment products from the whole of the investment market. Investors should be aware that past performance is not an indication of future performance, the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invested.