The first few months of President Trump’s second term have been a whirlwind of aggressive policymaking, with sweeping executive actions reshaping both the U.S. economic outlook and global investor sentiment. Key pillars of this new agenda include tightened immigration enforcement, national security, reducing trade deficits and ambitious tax reform proposals. While immigration changes may have longer-term labour market implications, it is the sharp escalation in trade measures—particularly tariffs—that has emerged as the most immediate concern for markets.
Since February, the administration has imposed tariffs on nearly all major trading partners. The escalation culminated on April 2 with the launch of the so-called “Liberation Day” reciprocal tariff regime. While these measures are central to Trump’s effort to reduce the trade deficit and reindustrialise the U.S., they have also darkened the outlook for growth, inflation, and earnings.
Sentiment indicators reflect mounting concern. The NFIB Small Business Optimism Index recorded its steepest drop since 2022, while the Conference Board’s Consumer Confidence Index has fallen for four consecutive months, hitting its lowest level since January 2021.
Weakening investor sentiment was also evident in markets, with the S&P 500 approaching bear market territory—defined as a decline of more than 20% from its recent peak—before Trump stepped back and suspended the country-specific reciprocal tariffs.
What’s happened so far?
As of now, tariffs impacting an estimated $3.1 trillion in U.S. imports are either active, retaliatory, or in limbo. We list some of the key ones below:
Active U.S. tariffs:
- 145% tariff on Chinese imports
- 10% baseline tariff on nearly all imported goods (excluding USMCA and select HS codes)
- 25% tariff on steel and aluminium
- 25% tariff on auto parts
Active retaliatory tariffs:
- Up to 84% on U.S. exports to China
- 4.4%–50% tariffs on U.S. steel and aluminium US exports to EU
- 25% tariffs on $30bn worth of U.S. exports to Canada
Paused or scheduled:
- Country-specific reciprocal tariffs
- 25% tariffs on Canadian and Mexican goods
- Mexico’s and the EU’s retaliatory measures against the USA
The policy landscape remains fluid, with several significant tariffs paused pending negotiations. Based on our analysis, we see three broad scenarios unfolding:
Tariffs are a key enabler of Trump’s other ambitions
We believe tariffs are not merely a bargaining tool for Trump—they are central to his broader ambitions: reducing trade deficits, reshoring manufacturing, enhancing national security, and most critically, funding tax reforms. The expiry of key provisions in the 2017 Tax Cuts and Jobs Act by the end of 2025 has intensified the pressure to secure alternative revenue streams to preserve or expand these tax-breaks which are estimated to cost around $5 trillion.
Tariffs could provide that funding, the April 2nd tariffs alone projected to generate $1.4 trillion over a decade, with the full regime potentially raising nearly $3 trillion. Coupled with cost savings from the government’s digital operations and efficiency reforms, this could offer the fiscal space needed to preserve Trump’s economic legacy.
But beyond fiscal motives lies a deeper ideological reason: the Trump administration views U.S. dependency on rival nations’ production as a national security vulnerability. They intend to use tariffs to resuscitate domestic production. These strategic concerns will likely cement Trump’s resistance to dismantling the tariff structure completely—despite market pressures.
Nonetheless, the U.S. does not possess unrestrained power. Major trading partners are already pushing back, and we anticipate a highly fluid, path-dependent process that ultimately converges with our base case. Importantly, the most fragile point in the U.S. strategy lies in the domestic politics, specifically, the sensitivity of financial markets and the American public’s tolerance for economic hardship, particularly when perceived as self-inflicted. For example, it is widely believed that the significant sell-off in US bonds played a pivotal role in Trump’s decision to pause the implementation of reciprocal tariffs. Political pressure is also mounting from within his own support base, further constraining his ability to escalate trade tensions—especially against counterparts who face fewer domestic limitations.
Economic outcomes under each scenario
Projecting the economic implications of each scenario is difficult given the path dependency and complexity of interlinked effects. However, assuming linear transitions, we outline potential macroeconomic states probabilities for each scenario:
Should the base case scenario materialise, economic outcomes—while less favourable than initial 2025 expectations—may still support a “muddled-through” outcome. However, the worst-case scenario would pose severe, potentially lasting damage to global growth and stability.
Portfolio positioning
Our base case has shifted to one characterised by sub-trend growth, elevated inflation, and persistent policy ambiguity. We also recognise the non-negligible risk of a more severe stagflation scenario, particularly if the trade conflict between the U.S. and its major trading partners proves prolonged.
From the outset of the year, our multi-asset portfolios were rebalanced with these risks in mind. We anticipated stretched U.S. equity valuations, heightened geopolitical friction, and unpredictable policy dynamics. Accordingly, we maintained neutral to underweight exposure to offshore markets, while increasing allocations to domestic assets, Europe, and China—regions offering more balanced risk-reward profiles and differentiated policy trajectories.
This positioning has provided resilience, though not full insulation from the broader sell-off. While the rebound in U.S. equities is encouraging, it does not meaningfully alter our outlook. We view it as part of a volatile, policy-driven adjustment process rather than the start of a sustained recovery. In this environment, our priority is to remain balanced, diversified, and responsive across asset classes. We continue to lean into exposures supported by structural tailwinds—such as domestic demand, favourable policy dynamics, and more compelling valuations—while avoiding concentrated directional risks.
Flexibility remains a cornerstone of our process. We are prepared to adjust positioning as key signals evolve. This includes a material recalibration in the tariff regime, a meaningful softening in inflation pressures, credible shifts in central bank guidance, or evidence of a broad-based recovery in corporate earnings outlook. Equally, we would reassess if we observed a more disorderly deterioration in global trade, a breakdown in political space in South Africa, or signs of financial market dysfunction.
Our forward-looking stance is not fixed—but it is deliberate. We will continue to adapt as conditions change, guided by disciplined scenario analysis and a commitment to long-term capital preservation and risk-aware portfolio construction.