In just one month, Trump’s presidency has upended the world order and thrown global markets into chaos with his tariff wars, leaving world leaders, economists, and investors scrambling to anticipate his next move. Many are looking to his first term in 2016 for clues, but this time is different. Unlike his first presidency, where he was new to the job and surrounded by a more measured team, Trump now operates with greater confidence and assertiveness, facing little opposition from within his cabinet, the Republican Party, or even the Democrats.
Trump’s 2025 tariff strategy differs from his 2016-2020 approach in its broader scope and more immediate implementation. While his first-term trade war primarily targeted China with a gradual escalation of tariffs, his latest strategy has expanded to include Canada, Mexico and European allies, sparking a more widespread global response. Additionally, the lack of structured negotiations and abrupt tariff rollouts have heightened uncertainty, leading to increased volatility in the stock market. Investors are now reacting to a more unpredictable trade environment, with rapid policy shifts amplifying market swings.
The Flip Flop Strategy of Trump's Tariff Strategy.
On March 6, a 25% tariff on all imports from Canada and Mexico took effect, along with an additional 10% tariff on China. In response, all three countries imposed significant retaliatory measures. Just a day later, Trump rolled back most of the tariffs on Canada and Mexico and postponed full implementation until April, but the tariffs on China remained unchanged.
Unlike its aggressive stance during Trump’s first term, Beijing's response this time has been more measured, signaling a strategic approach—applying pressure while keeping the door open for negotiations.
Stock Markets React to Policy Shifts
Trump’s tariff policies have injected significant volatility into global markets. U.S. stocks saw a sharp sell-off last week, with the Nasdaq Composite slipping into correction territory. European and Asian markets have also experienced turbulence, with investors uncertain about the long-term implications of Trump’s trade strategy.
The S&P 500 declined by 6% since the beginning of March, as investors priced in the economic risks associated with increased tariffs. Sectors heavily reliant on international trade, such as technology, agriculture, and industrial manufacturing, have experienced the most pressure. Meanwhile, bond markets have seen increased demand as investors seek safe-haven assets amid uncertainty.
Equity markets in Europe briefly rallied on hopes of a Ukraine peace deal, but optimism faded after Trump’s meeting with Ukrainian President Volodymyr Zelensky on February 28 failed to produce a breakthrough. Investors are now adjusting their strategies to navigate the uncertain geopolitical landscape.
China Stock Revival: Time to Buy?
China’s stock market staged a strong comeback, fueled by DeepSeek, a domestically developed AI tool that reignited Alibaba shares, driving a 40% gain in just a month. Adding to the optimism, President Xi signaled the end of his regulatory crackdown on tech and business leaders during a high-level meeting aimed at improving the business environment and countering economic slowdown and rising unemployment. Notably, Alibaba’s founder, Ma Yun—who had been largely absent from the public eye in recent years—was seen attending the meeting.
However, this momentum faces a major hurdle: the U.S.'s newly imposed 20% tariffs, with Trump vowing even more to come. He initially floated a steep 60% tariff on China and appears firm on maintaining these trade barriers, unlike the rollbacks seen with Canada and Mexico. While China is better prepared to handle a Trump presidency this time, U.S. imports of Chinese goods have grown since 2016, making escalating tariffs a potential threat to the ongoing market rally.
Going forward, fresh economic data will be crucial in determining how well China can absorb these tariffs and whether its stock market can sustain its rebound.
Investor Outlook: Volatility Ahead
It is expected that continued volatility is likely, given Trump’s unpredictable policy shifts. The S&P Market volatility is expected to persist as Trump’s unpredictable policy shifts continue. The S&P 500’s annualized volatility has risen from 10% in 2023 to nearly 15%, with analysts anticipating further swings. While Trump argues that the U.S. is reclaiming economic ground lost to foreign competitors, higher import tariffs risk driving up consumer prices and triggering retaliatory measures from trading partners.
In a congressional address, Trump announced additional tariffs set for April 2, including "reciprocal tariffs" and non-tariff measures aimed at correcting longstanding trade imbalances. “Other countries have used tariffs against us for decades, and now it’s our turn,” he declared, citing high duties imposed on U.S. goods by India, South Korea, the European Union, China, and others.
With uncertainty lingering over U.S. growth, trade policies, and geopolitical tensions, the current “risk-on, risk-off” environment is likely to continue. Investors should brace for further market swings and the possibility of sector-specific tariffs in the months ahead.
Portfolio Performance and Investment Strategy
Thanks to Trump’s chaotic tariff rollout, the portfolio has taken a hit: Cash (-2.34%), CPF-OA (-2.44%), and SRS (-2.20%). However, our timely profit-taking and shift to a more conservative stance—by increasing bond allocations in January—helped mitigate some losses.
What was unexpected was the simultaneous implementation of tariffs on the U.S.’s three largest trading partners, which has shaken investor confidence in the continued boom of the U.S. economy. Some economists are now warning of a potential stagflationary recession if tariffs on Canada, Mexico, the EU, and China proceed as planned.
Surprisingly, the German stock market has rallied due to Trump’s pivot away from traditional Western alliances, prompting Germany to abandon its balanced budget approach in favor of heavy military and infrastructure spending. This shift has unexpectedly brightened the outlook for Germany’s economy, which has been in recession for the past two years. As a result, Europe—now committed to massive military and infrastructure investments—has suddenly become an attractive investment prospect.
One concerning position in the portfolio is U.S. small-cap stocks, which now appear less attractive due to their heavy reliance on trade with Canada and Mexico. I may consider shifting out of U.S. small-cap funds in favor of European or Chinese markets, or, in anticipation of further volatility, moving into a cash fund—depending on how the next round of April tariffs unfolds. More chaos seems likely with the upcoming tariff rollout.
However, Trump seems to be closely monitoring the stock market. Since he was elected on the promise of strengthening the U.S. economy, his swift rollback of Canadian and Mexican tariffs may have been a direct response to the market’s sharp decline after their implementation. With the next round of tariffs looming, he may decide that the risk of tanking the stock market isn’t worth the economic fallout. Instead, he could declare victory on trade and shift his focus to other campaign promises. This best case scenario will lead to a rally in the U.S. stock market and hopefully, Trump will come to this conclusion sooner than later.
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