With President Donald Trump’s actions on what he dubbed Liberation Day proving to be more aggressive than anticipated — with European and Asian markets opening lower April 3 — European asset managers will not only be keeping a close eye on the impact on global trade, but also on the negative impact on the U.S. economy itself.
Trump’s tariffs hit Asian countries harder than European ones, sources said, highlighting a new 34% tariff on China imports — adding to an existing 20% charge — 49% on Cambodia, 46% on Vietnam and 26% on Japan. Europe faces a 20% tariff, while the U.K. along with other markets including Australia and Saudi Arabia, will be subject to the baseline 10% tariff. The move is indicative of the Trump administration’s plan to “decouple” from China, sources added.
As of noon EDT on April 3, the S&P 500 was down 3.8%, while the NASDAQ Composite index was down 4.7%. The FTSE 100 was down 1.6% at market close, while the Euro Stoxx 50 index dropped 3.6% over the day. The Nikkei 225, the stock market index for the Tokyo Stock Exchange, was down 2.8% by local market close.
“The uniformly negative reaction of equity and equity derivative markets post the ‘Liberation Day’ announcement reflects the ‘sticker shock’ from investors digesting a higher absolute level of tariffs from the U.S. than expected, although the relative ordering might have been more predictable,” said Altaf Kassam, managing director and Europe head of investment strategy and research at State Street Global Advisors, in an emailed comment. “Nowhere is this surprise clearer than in the rates levied against China and Vietnam, reflecting the Trump administration’s urgent desire to decouple its economy from China, meaning the equities of economies with strong trade linkages to China will also be hit, as well as those relying on China for growth.”
Kassam expects emerging markets equities, particularly those in Asia, to be the most vulnerable when it comes to continued underperformance, “as well as companies with complex global supply chains for whom recalibrating their business models will be a lengthy and complicated process. This negative ripple effect could also be exacerbated by currency weakness, both more immediately through and over the medium-term through monetary policy.”
But the 20% tariff on all European goods is also “potentially devastating for many industries, if indeed these tariffs are permanent and fixed in nature,” said Michael Field, chief equity strategist at Morningstar. However, he thinks the door is open to negotiation, although noted that governments have “no time to stop the process” since tariffs will be effective shortly.
A big impact will also be felt on the U.S., where Chris Iggo, AXA Investment Managers’ CIO for core investments, highlighted analyst expectations that the U.S. economy could grow at 1% to 2% less, while inflation will move higher. “This will be seen as a stagflation for the U.S. economy. Tariffs on goods from the rest of the world should reduce export growth and will be a negative growth shock, with Asia and Europe most affected given the size of the proposed tariff rates.”
And asset manager Candriam’s main scenario is now a U.S. policy/sentiment shock, CIO Nicolas Forest said in an emailed comment.
"This aggressive tariff policy is likely to crimp growth and, combined with a ‘tough’ immigration policy as well as the DOGE (department of government efficiency) policy, will bring more uncertainty," Forest said. "Although the U.S. economy began the year on a solid footing, higher inflation and falling stock markets are likely to dampen consumption, while lingering uncertainty will prompt companies to be cautious both in terms of new investment and hiring plans."
The challenge is “gauging the size of the shock to the U.S. economy,” he added. Negotiation might help to mitigate tariff hikes, but retaliatory measures from tariff-inflicted countries could exacerbate the impact of Trump’s moves.
“We now believe that our adverse scenario of policy and sentiment shocks derailing the expansion has become more probable than that of a ’soft landing‘: A recession by the end of 2025 looks increasingly likely, and inflation is set to be pushed upwards by 2%.”
Forest said Candriam expects the Federal Reserve not to be pre-emptive in that case, and rather would wait for more clarity and material signs of a slowdown before further easing. The firm expects three more rate cuts from the Fed in 2025.
The tariffs cannot be looked at in isolation, said Mike Fox, head of equities at Royal London Asset Management, in an emailed comment. “What we are witnessing is fundamental reordering of the global economy, from which there will be significant investment opportunities,” he said, outlining three economic regions — North America, Europe and Asia — that will trade “more within themselves than with each other. This suggests investors should think about these three regions separately rather than interlinked. Investing regionally as opposed to globally, even in investing globally, will be a skill set that many investors will have to learn and relearn. Globalization isn’t completely gone, but it may now matter which markets a company is listed on and operating in, in a way that it hasn’t for some time,” he said.
