President Trump’s surprise tariff announcement has sent shockwaves through global markets, shaking investor confidence and heightening concerns over global growth. With trade tensions escalating rapidly, investors are bracing for a new era of economic uncertainty. Here’s how Arbuthnot Latham is adapting to protect and position portfolios in the face of this sharp policy pivot.
On 2 April 2025, President Trump announced a sweeping 10% baseline tariff on all US imports, effective just three days later. Further escalating tensions, the US will impose country-specific reciprocal tariffs from 9 April, aimed squarely at nations with the largest trade surpluses with America. The abruptness and severity of the measures caught Wall Street off guard, triggering an immediate selloff across global equity markets. The S&P 500 dropped over 3%, the Nasdaq tumbled more than 4%, while European and Asian markets followed suit with steep declines.
Bond markets responded in classic fashion, rallying on the flight to safety. The US 10-year yield eased to 4.04%, and the German Bund slipped to 2.66%. Counterintuitively, the US dollar came under pressure, an unusual move during periods of market stress. According to Yale’s Budget Lab, these tariffs would push the US’s effective rate to its highest level in more than a century.
The economic implications are significant. Economists across the board are revising down growth expectations. With global sentiment already fragile, the scale of these tariffs risks compounding the slowdown. Uncertainty in trade policy is proving a potent drag on both business investment and consumer confidence. Higher import costs will likely push inflation higher in the short term, squeezing real disposable income and weakening consumption—historically a core driver of US and global GDP.
Goldman Sachs estimates that core inflation could rise to 3.5% year-on-year by December, driven by cost pass-through from the tariffs. While this effect may prove transitory if demand weakens and growth slows, the near-term inflation impulse is undeniable. The silver lining could be fiscal stimulus—if the US redirects tariff revenues to boost consumer spending via tax cuts. Otherwise, using those funds solely for deficit reduction could compound the economic slowdown.
Despite the policy shock, there are potential buffers. Should China or Europe deploy fiscal stimulus, or if the Federal Reserve resumes rate cuts, these measures could offset some of the global drag. However, visibility on such support remains limited. The hope of a de-escalation in tariffs lingers, but retaliatory measures from major trade partners may deepen the standoff before any resolution is in sight.
In response, Arbuthnot Latham has taken decisive steps to protect client portfolios. We have reduced equity exposure below our Strategic Asset Allocation target, reflecting the heightened downside risks to growth and earnings. Proceeds have been redirected into cash positions, providing flexibility as we assess further developments. Our current allocations include a substantial weighting in government bonds, which serve as a stabilising force during turbulent periods and offer defensive positioning as volatility rises.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Founded in 1833, Arbuthnot Banking is based in London, United Kingdom.
