Tariffs, Tensions, and Turmoil: Trump’s Impact on Global Markets in 2025
It is hard to think of anyone in recent history who has had such an impact on world events and markets as the US President, Donald Trump. Since he returned to the White House in January, his utterings have been the source of much market volatility that have clearly defined 2025. This has continued into October and would seem to show no signs of waning. Whether this will be another case of TACO (Trump Always Chickens Out) with his pronouncement on penal tariffs on China and further increase in tariffs on Canada, only time will tell. Whether it be TACO or not, the global economy has now been crammed with tariffs imposed by the US. Who is going to pay for them is not yet absolutely clear, but the US consumer is not looking like the winner.
In early October China expanded its export controls on rare earth metals and related technology, which are scheduled to take effect in phases. In response, President Trump said the US would impose an additional 100% tariff on Chinese goods, bringing the total rate to 140% as well as its own export controls on “any and all critical software,” starting on 1st November 2025. However, the situation could well change, especially as President Trump and China’s President Xi are expected to meet during the upcoming APEC event in South Korea.
“We think the most likely outcome of talks is that we won’t get additional 100% tariffs, or at least over any sustained period, and that export controls on both sides will be made permissive enough so that they don’t become an export embargo. Between now and then, though, there could be further escalation, and not everything will necessarily be resolved at the South Korea meeting,” said Abiel Reinhart, an economist at J.P. Morgan.
At the end of October following zero progress in the ending of the war in Ukraine, the US president announced “tremendous” sanctions on Rosneft and Lukoil, the Russian oil giants that fund Putin’s war machine through crude exports. Apart from the impact on Russia, this action will also cause India and China to review its purchasing of oil, which has predominantly come from Russia over recent years.
Private Credit Stress and the AI Bubble
We have also seen other issues arise over the last two months which give some cause for concern.
Bank of England governor Andrew Bailey has said “alarm bells” are ringing over risky lending in the private credit markets following the collapse of First Brands and Tricolor, as he drew a parallel with practices before the 2008 financial crisis. The comments from Bailey underline the concern among regulators that the rapid demise of US car parts supplier First Brands and subprime auto lender Tricolor in recent weeks are a sign of financial strains in the complex private credit markets.
The price of gold, Wall Street, and indeed many equity markets including the FTSE 100, has seen a significant number of new highs this year, with the S&P 500 and Nasdaq Composite reaching record highs multiple times, particularly in September and October. While the exact total varies by index, a total of at least twenty new 52-week highs were recorded on the S&P 500 on one trading day in October alone. This has seen some well-known financial professionals express concern. “We have a lot of assets out there which look like they’re entering bubble territory,” said JPMorgan Chase CEO Jamie Dimon. “That doesn’t mean they don’t have 20 percent to go. It’s just one more cause of concern.”
The Bank of England has also sounded the alarm over the risk of an AI bubble in financial markets that threatens to send shock waves across the globe. Officials at the Bank’s Financial Policy Committee (FPC) drew comparisons with the mania for so-called ‘dotcom’ stocks 25 years ago. They said share valuations ‘appear stretched, particularly for technology companies focused on Artificial Intelligence’. The Bank said the trend left equity markets ‘particularly exposed should expectations around the impact of AI become less optimistic’. AI-focused tech stocks are concentrated in US markets but many investors around the world have piled in and could be exposed to any downturn. Bank officials fear stock markets across the globe could also be caught up in any shock, which could also see lending seize up.
There are a lot of conflicting, contradictory and confusing messages for investors to digest in addition to the constant speculation over the UK budget at the end of November. On one recent weekend, headlines in the “quality papers” included “Stock markets risk ‘sharp correction’, warns Bank of England.” “We should all be worried about the great AI bubble” then “Central banks stoked the dotcom bubble. They’re doing it again for AI” and then a short time later “Keep your nerve: it is too soon to bail out of the AI boom.” We have been speaking to many asset managers, and they subscribe to the last headline. The message we have been hearing is that valuations are indeed high, but we are at the foothills of the AI revolution and the future earnings are hugely attractive. It is a very confusing time for all investors, and no-one has a crystal ball.
Cash Feels Safe — But History Says Otherwise
While investors may be aware that cash is never a good long-run option, it can be tempting to hide from elevated uncertainty and market volatility in the short run. Still-elevated deposit rates continue to amplify cash’s temptations.
Cash is unlikely to outperform a multi-asset portfolio, even over the near term. Whether the global economy expands further, falls into a downturn, or even experiences stagflation, history and data suggest asset classes other than cash will prove better investments. Investors should therefore continue to look to diversify their portfolios broadly, across global equities, fixed income, and inflation-protecting assets – whether these be in private or public markets. We are wary of private markets as liquidity (and valuation) remains a challenging hurdle for most investors. We have witnessed the impact on direct property funds when valuations and liquidity become strangled. We aim to have daily dealing for each of the funds in our portfolios, as the absence of this feature makes portfolio management significantly more complex.
Indeed, history suggests that even during abnormal uncertainty, cash has rarely been the best option for multi-asset investors. After a selection of economic and geopolitical shocks dating back to 1990, a 60/40 portfolio of equities and government bonds has outperformed cash more than 70% of the time over a one-year horizon, and always over three years. The average excess returns above cash are meaningful: 7 percentage points over one year, and more than 20 percentage points over a three-year timeframe. Thus, whatever the outlook for 2025, investors should bear in mind the historical value a diversified multi-asset portfolio has provided and avoid the temptation of cash.
In this age of uncertainty, the temptation to retreat into cash is understandable. But history suggests that those who embrace calculated risk – guided by sound advice and a long-term view – are more likely to preserve and grow their wealth in real terms.
The question isn’t whether uncertainty will persist. It will. The real question is: how will you position yourself to navigate it? We believe our fund managers have that skill. We also believe and know that timing the market is a folly, but time in the market is critical as missing the positive days is hugely destructive.
We mentioned last Investment View that a fund house had researched the veracity of some well-known financial sayings. We sought permission to give more detail from this fun research, but they did not want their research shared, other than to professional investors. So unfortunately we are not allowed to make any further reference or comment on this research, which is a pity.
The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” -William Arthur Ward
Who are you?
Douglas Kearney C.A. Investment Director
The above article is intended to be a topical commentary and should not be construed as financial advice. Past performance is not an indicator of future returns. Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation.