An Update: Trump, Tariffs & Markets

Navigating Market Volatility: A Note on Tariffs & Investment Strategy

The widely anticipated tariffs were announced on 2 April via executive order, on America’s so-called ‘Liberation Day’. The sweeping announcement is, in Trump’s own words, intended to ‘make America wealthy again’ as tariffs effectively act as a tax on foreign producers based on the value of their goods imported into the US. The US is currently the largest goods importer globally and is running a trade deficit (imports more than it exports). President Trump has said that he will not negotiate; however, if countries are willing to lower their charges on US goods, the White House has indicated that it may reduce the rate in effect.

Market impact

US equities have sold off sharply over the past two days, particularly those reliant on imported goods, as well as foreign companies that have significant exposure to the US market. At the time of writing, the FTSE 100 was down 4% to below 8,250, whilst sterling had appreciated to 1.30 against the dollar. Bond prices have broadly risen as investors have sought perceived safer assets.

SA equities and bonds responded negatively after markets opened. The All-Share was down around -3% by mid-day yesterday with the decline being led by Financials at -4.3%, while both Resources and Industrials were down approximately -2.4%, a trend which has continued today. The yield on the SA 10-year government bond spiked sharply to 11.3%, a move of 0.8% higher from Wednesday’s close. The rand remains relatively range-bound between R18.60 – R19.10 despite general US dollar weakness against most major currencies.

The sell-off reflects concerns that tariffs may increase input costs for US companies, reduce trade volumes, and strain corporate profits globally.

What we know about the Tariffs

The tariffs that were imposed on 2 April are of a reciprocal nature, meaning the US has enacted tariffs on goods entering the US from other countries, based on the tariffs that those countries place on US goods entering their own markets.

The 'Tariffs charged to the U.S.A.' are said to include 'Currency Manipulation and Trade Barriers', however it has been pointed out that the tariff figure the US has decided to charge other countries has been arrived at in a somewhat odd way. It appears that the end tariff is more based on trade imbalances with the U.S. rather than reciprocal tariffs. Therefore, it appears the US has taken a simplified approach rather than attempting to compute the effects of tariff, regulatory, tax and other policies in each individual country.

Below are some of the standout tariffs that Trump has imposed across the globe:

• China: 34% (in addition to the existing ±20% tariffs)
• India: 26%
• Japan: 24%
• EU: 20%
• UK: 10%

South Africa was handed a 30% reciprocal tariff based on US claims that South Africa applies 60% tariffs on goods imported into South Africa from the US. However, this is nowhere near accurate as the average tariff applied by South Africa on US goods is closer to 7.5% on average (see table below of SA tariffs on US goods). So, where does the 60% claimed tariff come from? What the US appears to have done in South Africa’s (and many other countries) case is to take the trade deficit (imports minus exports) and divide it by the total amount of goods imported from that country. The resulting percentage is then cut in half, and that becomes the US’s so-called ‘reciprocal’ tariff rate.

 SA tariffs on US goods

Source: Moneyweb and World Trade Organisation

Nearly half of South Africa’s 2024 exports to the US were dominated by platinum, which at this stage appears not to be subject to the reciprocal tariffs. Therefore, the effective overall tariff rate is likely to be lower given that certain key commodity exports, including gold and platinum, are currently exempted.

What we don’t know

President Trump has not made it clear whether the tariffs will remain in place indefinitely and whether indeed they will remain at the initial level. There are many factors that could impact their longevity, including legal ramifications, future election implications as well as pressure from within the Republican party or the broader US public. It is also yet to be seen how and when other countries will react to these changes.

Countries may look to increase their current tariffs on the US or indeed may consider reducing them. Additionally, President Trump has cited a host of reasons for imposing these tariffs, some of which appear to conflict with one another, however it is evident that Trump intends to reorient global trade or extract concessions from other countries.

What’s next?

While volatility and policy uncertainty will likely persist in the short term, we recommend investors keep a cool head. The challenge is to avoid overreacting to the daily headlines and elevated day-to-day volatility and remain focused on your financial plan.

Central Banks have been in a holding pattern in anticipation of actions taken by President Trump, and therefore this announcement may have an impact on future Central Bank policy and interest rates. From a longer-term perspective, we may see implications for economic growth across various regions; however, it is too early to tell at this stage.

From an investment standpoint, we continue to focus on the fundamentals, maintaining a long-term mindset, whilst paying attention to valuations. Market volatility can provide investors an opportunity to rethink their portfolios and find some better-valued investments with more attractive returns, however, it’s important to note that while selloffs will produce bargains, investors shouldn’t buy simply because stocks look less overvalued and attempting to ‘catch a falling knife’ carries its own unique set of risks.

Investing is always full of uncertainty, and at Legacy Family Wealth portfolios are constructed with this in mind. Valuations are a key factor in our decision-making process and diversification continues to be a strong portfolio strategy in these times of uncertainty. In investing, often the hardest thing to do, is to do nothing. When markets are unsettled, the instinct is to act — to tweak, adjust, or retreat. But more often than not, disciplined inaction, rooted in a sound strategy, delivers better outcomes than reactionary moves.

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Jordan Toy, CFA