Tariffs, turbulence, and the new global order

In an era marked by heightened geopolitical friction and economic fragility, strategic investment decision-making is facing one of its greatest tests. The aggressive tariff policies announced by President Donald Trump on 2 April 2025 have triggered a cascade of global disruptions - from violent equity market swings to strained international trade relationships and supply chain breakdowns. With the United States imposing sweeping and historically severe tariffs and China retaliating in kind, investors are confronting a new paradigm where economic policy is increasingly shaped by political brinkmanship rather than cooperation.

This report offers a comprehensive analysis of the economic and market implications of this tariff escalation, drawing connections between key developments: the collapse in US-China trade volumes, the re-emergence of stagflation risk, the vulnerability of multinational retailers such as Walmart, and the weaponisation of strategic resources like rare earth elements. It also explores the deepening cohesion of alternative economic blocs, particularly BRICS, and the increasing investment appeal of non-US equity markets, safe-haven assets, and select undervalued currencies. In this rapidly evolving landscape, understanding the intersection of policy, geopolitics, and markets is critical - not only to mitigate downside risks, but to position portfolios for resilience and opportunity.

Global Impact

President Donald Trump’s original tariffs included a baseline 10% tariff on all imports, with additional tariffs also levied on specific regions/countries including China (34% tariff), European Union (20%), Japan (24%), India (26%) and Vietnam (46%) based on the tariffs and trade barriers those countries impose on the US. This was subsequently revised to 10% for all countries, except China, which has a 145% tariff on its exports due to its retaliation of 125% on US goods [1].

On 9 April 2025, President Trump announced a 90-day pause on much of his Reciprocal Tariff Policy, originally announced on 2 April 2025. However, he didn’t remove tariffs completely and imposed a 10% global tariff base, which could be altered at President Trump’s discretion.

These tariffs are unprecedented in scope and severity and are expected to act as a substantial drag on global economic growth. The ex-ante tax hike from these tariffs amounts to nearly $1 trillion, or 3% of US GDP, the largest tax increase on US households and businesses since World War II [2].

Markets reacted violently, with the S&P 500 experiencing several record-breaking intraday swings, including an 8.5% swing on April 7th, the largest since March 13, 2020. Notably, on April 7, 2025, the S&P 500 had its largest intraday point swing ever recorded, fluctuating by 411.5 points. April 2025 was notable not only for their size but also for their frequency, with the US market experiencing multiple days with swings exceeding 300 points. This level of volatility is comparable to some of the most turbulent periods in recent history, as can be seen in the chart below:

Supply Chain Disruptions and Recession

Experts and investment banks have revised their global growth forecasts downward. The International Monetary Fund (IMF) projects global growth to slow to 2.5% in 2025, down from 3.1% in 2024 [4]. The IMF expects US GDP to grow by 1.8% in 2025, significantly less than the 2.7% it expected in January. However, the risk is likely to the downside with several investment banks noting that the possibility of a US recession in 2025 has increased significantly since the tariffs were announced. China is expected to grow at 4% this year by the IMF, compared to its official target of ‘around 5%’, but again, it will depend on how negotiations progress and how the government responds to potentially weaker growth [5]. The ripple effects are also likely to be felt across Europe, Japan, and emerging markets, with growth also downgraded across most regions.

One major concern with tariffs is their potential negative impact on global trade and supply chains, like the disruptions experienced during the COVID-19 pandemic. Tariffs could potentially lead to factory shutdowns, reduced transportation capacity, and severe delays in the production and delivery of goods. These disruptions are already being seen with trade volumes between China and the US collapsing. US import bookings have already fallen sharply, with container bookings from China to the US dropping by 44.49% year-over-year in the week of April 14, 2025, while the Port of Los Angeles projects a 33% year-over-year decline in import volumes for early May 2025[6].

A supply/demand imbalance, similar to what occurred during the Covid period, will likely lead to higher prices, with supply shortages adding to the direct price impacts from the tariffs. The potential effect on the US economy could be dire, with a slide in business sentiment, further supply chain disruptions, and a lack of certainty and confidence expected to hurt US businesses. If this leads to empty shelves, any business with insufficient working capital could come under pressure as falling near-term sales impact their cash flow and ongoing viability as a business. The flow-on effect for unemployment and spending would likely be major, given the potential impact on small businesses.

Where are we at now?

Given that China makes ~34% of all manufactured goods, the future largely depends on the actions and negotiations between the US and China. These negotiations are akin to a high-stakes poker game, with both leaders making strategic moves to outmanoeuvre the other while maintaining a strong negotiating position.

• President Trump believes the US can withstand the economic impact of tariffs better than China, but faces significant political pressure to protect American jobs and industries.
• China has downplayed the potential impact of tariffs, assuming that China's large domestic market and diversified trade relationships provide some buffer against US tariffs [7].

Recent developments suggest that China has a stronger hand than most financial commentators previously believed, especially given its control over many global supply chains. The US has 'blinked' and softened its initial aggressive stance towards China, with both President Trump and US Treasury Secretary Scott Bessent recently acknowledging that high tariffs between the US and China are not sustainable. [8] Trump has pared back his rhetoric following meetings with executives from major retailers, who warned that import taxes could disrupt supply chains and raise prices.

Meanwhile, China has been strengthening its trade relationships with other countries, particularly across Southeast Asia and Latin America, reducing its reliance on the US market and mitigating the impact of US tariffs. Many now think that if the trade conflict is prolonged, President Xi can likely outlast Trump, knowing that pressure in the US is building more than in China.

Interestingly, Trump and his aides have suggested that trade negotiations are underway, but China has denied that it is in talks with Washington to resolve the trade war. This ongoing uncertainty continues to impact global markets and economic stability. [9]

Rare Earth Elements (REEs)

The supply, production, and processing of rare earth elements (REEs) are critical aspects of the trade relationship between China and the United States. One reason why China holds the upper hand in negotiations is that it produces almost 70% and refines over 90% of the world's rare earth elements. This includes mining, refining, and manufacturing of components such as magnets, which are essential for various high-tech and defence applications.

The strategic importance of rare earth elements cannot be overstated. They are crucial for the production of all technology hardware, ranging from mobile phones and appliances to renewable energy and military hardware. The geopolitical implications of control over these resources are significant. Following President Trump’s tariff announcement on April 2^nd, China retaliated by banning the export of REE to the US and other nations, including Japan and Germany. If the ban is upheld, it would have significant repercussions across several key industries, including:

Defence Industry [10]

• F-35 Fighter Jets: Each jet contains over 900 pounds of REEs
• Submarines: Virginia-class submarines use around 9,200 pounds of REEs
• Missile Systems: Tomahawk missiles and other advanced weaponry rely heavily on these materials

Technology and Electronics [11]

• Magnets: Used in hard drives, speakers, and other electronic devices
• Displays: Critical for screens in smartphones, tablets, and TVs
• Semiconductors: Lanthanides, yttrium, and scandium are critical in enhancing the performance of semiconductor devices

Clean Energ y[12]

• Wind Turbines: Neodymium magnets are vital for the efficiency of wind turbines.
• Electric Vehicles: Motors in EVs rely on REEs for their performance and efficiency

Retail Example (Walmart)

Walmart is the largest retailer in the United States. In 2023, Walmart's U.S. retail sales reached approximately $534 billion across 5,300 stores. [13] Walmart's dependence on China is a significant aspect of its global supply chain strategy, with approximately 60% of its global supply chain relying on Chinese suppliers. [14]

This heavy reliance is driven by China's ability to produce goods at lower costs due to its established manufacturing infrastructure and competitive pricing. It also however places Walmart in a precarious position and potentially impacts the ability for US consumers to benefit from a wide range of affordable products. Any disruption in the supply chain, such as a halt in exports from China, is likely to significantly affect Walmart's operations and product availability.

While Walmart benefits from low-cost goods, it has limited leverage over Chinese suppliers, especially in the face of geopolitical tensions and trade disputes. For instance, during the recent tariff hikes imposed by the U.S., Walmart attempted to pass on the increased costs to Chinese suppliers, demanding a 10% price cut.[15] This move was met with strong resistance from Chinese manufacturers and the government, meaning that the higher prices will likely be passed on to US consumers and not borne by Chinese manufacturers.

Overall, like many US retailers that have outsourced their supply chains to China, Walmart (and their customers) are dependent on China's established manufacturing infrastructure and competitive pricing, giving China a strong negotiating position.

BRICs

US tariffs have played a significant role in strengthening the BRICS alliance (which includes 10 nations and 9 partner nations, representing ~55% of the world's population) by pushing these countries to collaborate more closely in response to trade pressures. Recently, BRICS foreign ministers met in Rio de Janeiro to discuss a coordinated response to US trade policies. They issued a joint statement criticising unilateral trade measures and reaffirming their commitment to multilateral trade negotiations. [16] This unified stance highlights their collective resistance to U.S. tariffs and their efforts to protect their economic interests. At the meeting, Brazilian Ambassador Mauricio Lyrio said, "The ministers are negotiating a declaration to reaffirm the centrality of... multilateral trade negotiations as the main axis of action in trade,". "They will reaffirm their criticism of unilateral measures of any origin, which has been a longstanding position of BRICS countries." [17]

BRICS nations have been working together to reduce their dependence on the U.S. dollar and promote trade in their local currencies. [18] This move is part of a broader strategy to mitigate the impact of US tariffs and reduce vulnerability to U.S. economic policies. As a result, the group has come under fire from President Trump, who threatened another 100% in tariffs if the bloc moves ahead with a single currency to replace the dollar in trade relations. He also recently stated that countries aligning with China could face not only economic repercussions but also strained diplomatic relations with the US. [19]. However, 145 countries, or about 70% of the world’s economies, trade more with China than with the US, including the BRICS nations.[20] As such, it is arguable how much influence President Trump could have over these nations if China reciprocated the US threats.

Investment Implications

Equity Markets

A slower global economy is likely to be a headwind for global equities. US equities look particularly vulnerable, especially if America enters a recession and unemployment rises. The US is also at risk of stagflation, where inflation increases, and economic growth slows. Major concerns include:

• Economic Data: Recent US economic data shows signs of slowing growth and persistent inflation. Consumer sentiment has dropped, business activity is slowing, and key labour market indicators are weakening. [21] [22]
• Tariff Policies: The Trump administration's tariff policies are seen as significant contributors to inflationary pressures while also dampening growth. [23] These policies have led to higher costs for consumers and businesses, exacerbating stagflation risks.

The last major episode of stagflation in the US occurred in the 1970s, driven by oil shocks and policy missteps. Equities and bonds performed poorly in real terms during that period as inflation reduced real returns. However, energy and commodities outperformed due to rising commodity and energy prices.

As a result, we favour non-US global equity markets. China will undoubtedly feel some economic backlash from the tariffs; however, it is now in an excellent position to negotiate mutually beneficial trade deals with other countries, and its equity market could see upside on positive news flow. Trump's tariffs have pushed several nations closer to China, and the European Parliament is in the ‘final stages’ of discussions about removing sanctions and improving trade relations. Japan and Korea also look attractive from a valuation perspective, and we think tariff clarity will be a significant benefit to these markets.

Europe also looks attractive with undemanding valuations and resilient earnings growth. However, the political environment poses a risk to the region, as does the potential for higher input costs if inflation increases and reduced trade if tariff negotiations don’t succeed. Europe is in a significantly weaker bargaining position with the US compared to China. The recent appreciation of the Euro is another potential headwind for European exporters and could be significant if the US economy weakens and the US dollar continues to fall.

Currencies

Although the US dollar has already depreciated significantly in 2025, we think there is a risk of it falling further given the ongoing deterioration of the US economy, growing debt levels and the potential for the fiscal deficit to be expanded as the economy slows.

There is also a real chance that the US Federal Reserve (Fed) implements some form of Quantitative Easing (QE) or Yield Curve Control (YCC) if Treasury yields increase too much due to inflation, lack of demand for US assets, or a lack of confidence in the US financial system. The risk of a recession could prompt the Fed to use QE or YCC to support the economy by lowering long-term interest rates and encouraging borrowing and investment if the government is unable to provide sufficient fiscal support. This would likely put further pressure on the US dollar, especially if other countries maintain stable monetary policy regimes.

The Australian dollar is significantly undervalued and should benefit from this environment, especially if the economic outlook for China improves post-tariff negotiations. The Japanese yen is also significantly undervalued and should benefit from a weaker US dollar, improved interest rate differentials, and potential safe-haven buying if equities sell off.

Commodity Markets

Aggressive tariff policies and resulting economic uncertainty are likely to have widespread and significant impacts on commodity markets. The price of gold has already surged to record levels, but we think the investment case remains compelling for several reasons:

1. Inflation Hedge: Gold acts as a hedge against inflation, which is particularly relevant given the potential for tariffs to lift prices.
2. Safe-Haven Asset: Geopolitical uncertainties and economic instability often drive investors towards safe-haven assets like gold.
3. Central Bank Reserves: Central banks continue to increase their gold reserves to diversify away from US assets.
4. Weakening US Dollar: The weakening US dollar further supports higher gold prices, given global pricing and as a potential monetary and trade alternative.

We think gold can be a long-term hold in the portfolio, with any retracements being an opportunity to add exposure.

Conclusion

The 2025 tariff escalation is far more than a temporary market disruption — it reflects a profound realignment in global trade, economic influence, and geopolitical strategy. As the US and China continue to spar, the resulting fragmentation is reshaping the global investment landscape in real time. Growth forecasts have been slashed, supply chains are being redrawn, and inflation pressures are resurfacing - all while political uncertainty clouds the outlook for investors.

In this context, our research identifies a growing case for geographic diversification, with compelling opportunities in select non-US equity markets, particularly in China, Japan, and Europe. We also see strategic merit in allocating to commodities and safe-haven assets like gold, which offer protection in stagflationary or risk-off environments. Meanwhile, currency mispricings in the Australian dollar and Japanese yen offer targeted value opportunities.

Navigating this complexity requires more than market timing - it demands a clear-eyed, globally informed strategy. Our team remains committed to helping investors adapt and thrive by identifying areas of resilience, managing risk exposure, and capitalising on dislocations. For those seeking guidance in these volatile times, we welcome the opportunity to support your investment journey.