Financial markets under pressure: US President Trump imposes massive increase in trade tariffs

On Wednesday evening, US President Donald Trump announced a far-reaching expansion of his protectionist trade policy. The plan is to impose a general basic tariff of 10 percent on all imports. This will be supplemented by country-specific measures, which Trump says will be ‘reciprocal’ and in response to existing trade restrictions imposed by respective countries. Switzerland is affected by a tariff of 31 percent, while a lower rate of 20 percent will apply to EU goods and a rate of 34 percent to goods from China.

Massive economic impact, especially for the US itself

The economic consequences of these measures are considerable and primarily affect the US economy and population itself. The new tariffs will make imports noticeably more expensive. The resulting cost pressure will either have to be borne by US companies, which could lead to falling margins and possible employment effects, or it will be passed on to consumers, which would result in significantly higher inflation rates. In either case, the economic headwind is likely to increase and domestic demand will come under further pressure.

The global economy is also likely to suffer from the consequences of the intensifying trade conflict. Although the specific countermeasures of other countries are currently still unclear, a decline in global export volumes seems almost unavoidable. The Swiss economy will also be affected by this, even though it levies no or only very low tariffs on US imports (with the exception of agricultural goods), but has a considerable trade surplus and has therefore been hit with very high tariffs. However, the fact that pharmaceutical products, which account for around half of Swiss exports to the US, have so far been exempt from the measures is positive for the Swiss economy.

Adherence to defensive positioning

The financial markets reacted with heavy losses to the announcement of the new tariffs. This meant that the sell-off on the stock markets continued. A flight to safe investments had already begun, which caused the stock markets to lose ground. In view of the increased uncertainty and the threat of countermeasures, we recommend adhering to our defensive positioning.

We therefore remain cautious and continue to underweight the US equity market. The threat of rising inflation rates, a weakening economy and the high dependence of the economy on consumers, whose sentiment has already fallen and is likely to suffer further, could put additional pressure on corporate earnings and equity prices in the US. Instead, we are adding to US Treasuries, which support our defensive positioning and could benefit particularly from a slowing US economy. We are also adding to our defensive stance with an overweight in the undervalued Japanese yen, which is considered a safe haven, and in listed Swiss real estate funds, which are less affected by tariff policy overall.