The broad thesis laid out in February by Ninety One’s Investment Institute — that President Trump’s tariff strategy is both more ambitious and more systematic than markets appreciated — was confirmed by the 2 April announcement. What comes next? While investors remain in the thick of an unfolding shock to financial markets and soon global economy, the Institute has produced scenarios to support investors in working through the implications for markets.
Trump’s tariff plan
What did Trump do? Effective 5 April, most countries faced a new baseline tariff of 10%, with others subject to higher rates under the new reciprocal tariff formula. After days of market turmoil, which continue, President Trump paused these higher rates until July 2025, except for China, where tariffs have been raised.
With services excluded, the focus remains squarely on goods, and exemptions are limited to a narrow range of strategically or politically sensitive sectors. Steel, aluminium, autos, lumber, copper, semiconductors, pharmaceuticals, critical minerals, and energy products are either already tariffed at higher rates or temporarily exempted due to ongoing reviews. Smartphones, computers and some other consumer electronic devices have also been excluded.
The big “winners” of the announcement, Canada and Mexico, have been treated more favourably under the United States-Mexico-Canada Agreement (USMCA). They will continue to face 25% across-the-board border and fentanyl-related tariffs, but the estimated 50% of USMCA-compliant products are tariffed at 0%.
Even after the changes made on 9 April, the just-pay-it US tariff rate on weighted imports is now estimated at 18%, assuming some trade diversion, with a heavier tilt towards China. This marks the most significant tariff increase in modern US history. For context, the Smoot-Hawley Tariff Act of 1930 raised average tariffs to 20%—a level that, until now, had remained a historical outlier.
Historical tariff comparisons
| Affected imports (% share of GDP) | Average tariff (dutiable imports) prior to change | Average tariff (dutiable imports) after change | Percentage point increase in rate | |
|---|---|---|---|---|
| McKinley Tariff of 1890 | 2.7% | 41.3 | 52.0 | +10.6 points |
| Fordney McCumber Tariff of 1922 | 1.3% | 21.0 | 38.8 | +17.8 points |
| Smoot-Hawley Tariff of 1930 | 1.4% | 35.7 | 41.1 | +5.4 points |
| Trump Tariff, as revised April 9, 2025 | 11.1% | 7.4 | 18.0 | +10.6 points |
Sources: Ninety One, Doug Irwin calculations based on the following sources. For McKinley duties: "Duties Collected under the Existing Tariff," Senate Miscellaneous Document No. 178, 51st Congress, 1st Session, June 28, 1890, p. 241. For Fordney-McCumber: US Tariff Commission (1930), "Comparison of Rates of Duty in Pending Tariff Bill of 1929," Senate Document No. 119. 71st Congress, 2d Session, Washington, D.C.: GPO, p. 1; and Congressional Record, June 14, 1930, 10748. For Smoot-Hawley: Douglas A. Irwin, Peddling Protectionism: Smoot-Hawley and the Great Depression, Princeton University Press, 2011, p. 103. For Nominal GDP: BEA for 1929 and 2023; historical nominal GDP. https://www.measuringworth.com/datasets/usgdp/
A more radical trade framework
The policy objectives remain multifaceted: to reduce bilateral trade deficits, reshore manufacturing, generate revenue, and incentivise trade renegotiations. As Brad Setser put it, “At some point we just need to take the President at his word” that closing bilateral trade deficits is a primary goal.
This iteration of the Trump 2.0 administration’s trade policy is less structured and less concerned with inflationary risks than in the past.
The initial use of a simple trade-deficit-based formula — publicly chosen by Trump himself — surprised markets. It bypassed more complex assessments of tariff and non-tariff barriers that were under development within the administration. While politically expedient, this method creates confusion for trade partners and complicates the path to negotiation.
Legal and political uncertainty
The legal basis for the tariffs — invoking the International Emergency Economic Powers Act (IEEPA) — will likely face court challenges. Early cases have already been filed, and while judicial deference during emergencies is typical, legal vulnerability remains. Should courts strike down the IEEPA basis, Trump may need to fall back on more deliberative tools such as Section 232 of the Trade Expansion Act.
Domestic political dynamics are fluid. While there is some movement in Congress to reclaim authority over tariffs, the legislative outlook remains uncertain. However, administration allies are already advocating for a legislative foundation to support a long-term 10% global tariff, such as revoking China’s PNTR/MFN1 status or formalising the baseline rate through bipartisan legislation.
What to watch in global trade negotiations
The next phase of international negotiations, which will continue during the 90-day pause, will be pivotal in shaping the global investment and trade landscape.
China’s response has been more hawkish than its playbook during Trump 1.0, and there remain major hurdles to an agreement, though one must be made if a shock to the global economy is to be avoided. In 2019, China avoided taxing US intermediate goods critical to its export base, substituted imports like aircraft from Boeing with Airbus orders, and simply did without many US agricultural products. With effective tariff rates now exceeding 47% on average for Chinese goods, Beijing may permit a mild depreciation of the renminbi to cushion the blow — avoiding full devaluation to limit global financial spillovers. TikTok’s fate could also become a symbolic bargaining chip. Domestic policy responses are expected to be restrained, with limited consumption stimulus aimed at household durables
For Canada and Mexico, the focus will be on how USMCA compliance evolves under pressure. Mexico may be pushed to align more closely with US tariff levels — potentially straining its existing commitments under the CPTPP, particularly its pledge to eliminate nearly all tariffs on Vietnamese imports by 2028. Autos, which comprise 4–5% of Mexico’s GDP, are especially vulnerable. Once its election concludes, Canada will likely take a more conciliatory stance — potentially offering concessions on interprovincial trade, critical minerals, and softwood lumber while increasing cross-border investment.
For close US allies such as the UK and Israel, a key question is whether they can secure “USMCA-compliant” status to benefit from preferential treatment.
Meanwhile, the EU faces a more complex path. Trump’s demands — such as VAT repeal, relaxed tech regulation, and poultry market access — are politically unpalatable and economically contradictory. While Europe was poised to introduce countermeasures, it too has paused for 90 days. The EU has offered the Trump administration a “zero for zero,” in which both sides would eliminate tariffs on industrial goods, including autos. Trump rejected this suggesting the EU should buy more natural gas from the US. The pause offers Europe time and space for more tactical manoeuvring.
Elsewhere in Asia, Japan — having committed US$1 trillion in US investments and energy purchases — may offer agricultural concessions. India is more constrained. Politically powerful farmers and memories of past protests will likely limit tariff reductions to less sensitive categories like fruits rather than staples such as wheat or corn.
Overall, negotiations will be messy, slow-moving, and highly idiosyncratic. While the US initially suggested a tariff framework grounded in a sophisticated assessment of trade barriers, the final formula — based simply on bilateral trade deficits — offers little transparency or flexibility. That means even countries willing to negotiate quickly may find their path to lower tariffs unclear. Deal-making capacity will vary significantly: smaller allies like Israel may move fast, but progress with the EU and China will likely be slow, bureaucratic, and structurally constrained. USMCA renegotiations will unfold over months, focusing on rules of origin and autos, while a potential Trump-Xi meeting at the UN General Assembly in September could mark a key inflection point in the broader global trade reset.
Scenario analysis: framing the investment landscape
Our base case, which we currently assign a 60% probability, likely results in a modest US recession while tariffs trend towards 15% overall. In this scenario, the administration pauses reciprocal tariffs for 2-3 months after a disorderly market sell-off but keeps them on the table. (We wrote this before the pause, which has now happened) Some hyperfinancialised feedback loops kick in, bleeding into the real economy faster than expected. Business and consumer activity contracts with the new USMCA renegotiation delayed. Credit conditions tighten, and investor confidence continues to erode from the US exceptionalism moment in January. Inflation initially rises as higher import costs filter through, but as demand weakens, core inflation falls below 2% by year-end. Globally, growth will decelerate, and disinflationary pressures will build, especially in regions reliant on external demand.
A more constructive scenario — with a 30% probability — will see early signs of de-escalation, with tariffs settling around 10% while tariffs become a second-tier concern for markets, though uncertainty does not truly revert to January levels. Political and market pressure will likely force the US administration to roll back some reciprocal tariffs, especially for allies. Countries such as Vietnam are expected to move quickly to secure bilateral agreements. If the USMCA is finalised faster than expected and fiscal support is deployed across the US and Europe, growth momentum will recover. Inflation will rise only modestly, remaining within central bank tolerance levels.
In a downside scenario — which we view as a 10% probability — the situation will deteriorate into a full-scale trade war, with tariffs remaining north of 20%. The US will entrench elevated tariffs, and key global trading partners (the EU, China, Japan) will coordinate retaliation. Global trade will fragment into blocs. Capex collapses, GDP growth stalls, and persistent inflation — combined with limited policy flexibility — will create a structurally lower-growth regime. Legal and institutional checks will likely prove ineffective in reversing course, prolonging uncertainty and weighing on market sentiment.
Investment implications
As the global economy adjusts to the new tariff regime, investors will face a more fragmented policy landscape, growing regional divergence, and heightened market volatility. Outcomes will differ substantially by asset class, region, and sector. Flexibility, selectivity, and a strong focus on fundamentals will become increasingly important in shaping risk-adjusted returns in this environment.
Rather than relying on broad market exposure, investment strategies that can identify resilient businesses, adapt to rapidly evolving conditions, and manage risk dynamically will likely be better positioned.
Equities: navigating dispersion through fundamentals and structural growth
Equity markets will become more polarised as trade frictions and shifting policy stances create uneven impacts across countries and sectors:
- Domestic demand and policy insulation will be key. Markets such as China, India and the UAE, where growth is more internally driven and trade exposure is limited, may offer relative stability. Within emerging markets, sectors supported by structural reforms or pro-growth policy frameworks will continue to attract capital.
- Companies with strong fundamentals will stand out. Businesses with pricing power, recurring revenues, and robust balance sheets will be better placed to absorb tariff-related input cost pressures or pass them on without sacrificing demand. These qualities tend to be concentrated in service-oriented, capital-light sectors such as software, healthcare, and consumer platforms.
- Structural themes will continue to matter. Despite near-term dislocation, the long-term investment case for areas like decarbonisation, digital infrastructure, and supply chain localisation remains intact. These themes offer a degree of visibility and durability, particularly where policy support aligns with private capital.
- Regional policy divergence will require nuance. Europe and Japan may experience deflationary impulses as global trade flows reorient, while the US could contend with stickier inflation and a more constrained monetary stance. These dynamics will make geographic allocation and security selection increasingly important.
Fixed Income: emphasis on quality, credit selection, and local dynamics
In fixed income, the shifting macro backdrop will call for thoughtful positioning across both duration and credit:
- High-quality duration will offer diversification benefits. In scenarios where growth slows or recession risk rises, sovereign bonds and agency-backed securities will provide a useful counterbalance to risk assets.
- Credit markets will become more nuanced. Sector-level differentiation will sharpen as companies react differently to tariff pressures. Domestically focused sectors such as utilities, telcos, and financials may prove more defensive, while trade-exposed industrials or discretionary consumer names may face more earnings volatility.
- Emerging markets will present opportunities — and require selectivity. Countries with appreciating currencies, falling inflation, and monetary space to ease — particularly in Latin America and Central Europe — could offer duration and income opportunities. In contrast, weaker credits more vulnerable to global funding conditions may come under pressure.
Alternatives: flexibility, downside protection, and differentiated exposures
In a less predictable policy environment, alternative strategies will play a valuable role in achieving portfolio resilience and accessing more targeted sources of return:
- Broader toolkits will benefit multi-asset and absolute return strategies. The ability to calibrate exposure to equities, rates, and credit dynamically and manage downside risk through hedging or options will be a key differentiator as volatility remains elevated.
- Flexibility will add value as capital needs to be reallocated. Strategies that can navigate shifts in valuations and policy regimes — and redeploy capital as spreads widen or new opportunities emerge — may offer an advantage over approaches locked into static exposures.
- Thematic exposures will remain relevant. Structural growth areas such as clean energy, infrastructure, and resource transition — particularly where underpinned by regulatory frameworks or multi-year demand — will continue to provide differentiated returns. Allocations to real assets and sustainability-linked investments can support both resilience and long-term objectives.
In summary, this is a more complex market regime — one in which macro conditions, policy actions, and asset-level fundamentals will interact in increasingly idiosyncratic ways. Against this backdrop, investment approaches that are selective, risk-aware, and able to adjust with the environment are likely to be best equipped to navigate the period ahead.
1 Permanent Normal Trade Relations (PNTR); Most Favoured Nation (MFN).
