What a week! The U.S. started the year as the world’s strongest economy with the most positive outlook—only to face a probable recession within just seven days. The Trump administration imposed historically high tariffs, triggering a trade war with major trading partners.
Initially, analysts and economists were optimistic, believing Trump was using the threat of tariffs as a negotiation tool. Even if tariffs were implemented, they expected them to remain within a manageable 2-10% range, targeting select countries to avoid tanking the stock market. After all, Trump had often used the market’s performance as a barometer of his success, positioning himself as the president who would usher in prosperity for Americans. Surely, he wouldn’t risk his personal reputation by employing extreme measures?
However, the market turned ugly when the actual tariff rates were revealed—ranging from 10% to a staggering 54%.
Between April 2, when the tariffs were announced, and April 9, when they were implemented, investors clung to hope that Trump would make another U-turn. Countries rushed to offer concessions, eager to have the tariffs removed. Yet, every offer was rebuffed, with the administration demanding more than just reciprocal tariff removals.
A Deeply Flawed Tariff Formula
One key flaw in the White House’s tariff approach is that it doesn’t account for the actual tariff levels imposed by other countries. Instead, it simply takes America’s trade deficit with a country and divides it by the value of imports from that nation—leading to arbitrary and extreme tariff levels.
As a result, tariffs were imposed even on nations with existing free trade agreements—such as Singapore, Australia, Peru, and South Korea—where tariffs were already reciprocal, meaning neither side charged duties.
A striking example is Vietnam. The U.S. imposed a 46% tariff on Vietnamese imports, despite WTO data showing Vietnam’s tariffs on U.S. goods average just 9.4% (simple) and 5.1% (weighted). Clearly, this wasn’t about fair tariff matching. When Hanoi even offered to drop all tariffs on U.S. imports, Trump’s trade advisor, Peter Navarro, dismissed the proposal outright. Instead, he cited “nontariff cheating” as the real issue, pointing to Chinese goods rerouted through Vietnam and Vietnam’s VAT system as justification.
Yet, the White House’s formula doesn’t even measure tariff or nontariff barriers—raising the question: Is this really about fairness, or just another negotiation tactic?
Markets Panic as Clarity Fades
Investors were spooked by the administration’s steadfast refusal of fair offers and the lack of clear guidelines on what it would take to lower or remove tariffs. By April 7, global markets had tanked, with uncertainty gripping investors and businesses alike.
Since April 2, the markets have plunged 8% to 15% within a week. The worst-hit sectors include Energy (-15%), Finance (-13%), Japan (-13%), and Technology (-13%).
On the other hand, the best-performing assets were, unsurprisingly, safe-haven Money Market funds (0%) and Global Bonds (-3%). However, in a surprising turn, India (-3%) outperformed all other country equities.
Meanwhile, the VIX index, which measures market volatility and investor fear, surged to levels last seen at the onset of the COVID-19 pandemic.
The entire episode eerily mirrors the onset of the COVID-19 pandemic. Back then, the global economy was humming along—weakening, but with no immediate recession on the horizon. Then, with little warning, an unpredictable virus struck, grinding the global economy to a halt. It took a full year before the stock market began to recover.
Now, history seems to be repeating itself—but this time, Trump is the unpredictable virus, putting the brakes on global trade, tanking oil prices, and stalling economic activity as businesses struggle with uncertainty, unsure of when the crisis will end.
The Vaccine: Democracy and Public Pressure
If the COVID-19 vaccine helped bring stability to the pandemic, then the vaccine in this case is democracy and public pressure—forces that every elected leader must contend with.
This is why, despite the current turmoil, a full-blown trade war with China will likely force Trump to back down. Unlike the U.S., where public backlash can shift policy, China’s government holds tight control over both policy and public perception. The trade war is viewed as an unprovoked attack by the U.S., making it easier for Beijing to rally its citizens to endure economic hardship. The same phenomenon played out in Canada and Europe, where Trump’s tariffs galvanized public support against the U.S., uniting previously divided nations.
Signs of domestic resistance are already emerging. Over the weekend, large-scale protests erupted in major U.S. cities, led by left-leaning groups. Meanwhile, Republican billionaire donors, including Elon Musk and Home Depot founder Ken Langone, have spoken out against the tariffs. While many Republican capitalists support strategic tariffs, they are rejecting the reckless, excessive, and indiscriminate trade policies now hurting their businesses.
The question now is: How long before the pressure forces Trump to change course?
When will Trump cave to the pressure? It could happen tomorrow, or it might take six months—but one thing is certain: the longer these tariffs remain, the higher the chances of a U.S. recession. And with the midterm elections just two years away, a prolonged economic downturn could trigger a Democratic “blue wave”, as voters seek to curb the president’s power.
For now, we may have to brace for impact until Trump bows to public pressure. However, for investors with cash on the sidelines, this turmoil presents an opportunity. Badly battered companies that can rebound quickly once tariffs are lowered are worth watching.
With fear at its peak and markets bleeding, this may just be another golden opportunity for the savvy investor.
Portfolio Performance and Strategy
Our investment portfolio has declined by an average of 6.4% since April 1, compared to the broader market’s 12% drop following Trump’s tariff announcement. This is thanks to our profit-taking earlier in the year into money market funds and maintaining a broader diversification away from U.S. and technology stocks.
I will employ a similar strategy to what was successfully used during the COVID market downturn. I will begin moving funds from money markets back into equities gradually, in tranches, based on correction levels. Over the coming months, I will deploy capital periodically as the market stabilizes.
As for the performance of the portfolio for the month of March, the returns are Cash(-2.87%), CPF-OA(-3.98%), SRS (-2.88%). The negative returns for March is due to the anticipated impact of the tariffs that the Trump administration is promising to implement in early April, which has since came to pass.
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