Markets are digesting a major policy surprise following the announcement of sweeping new tariffs from the Trump administration. With global equities pulling back and volatility spiking, it’s important to take a step back and understand what was announced, how it’s being interpreted, and what it may mean for investments.
Full disclosure: This is a rapidly evolving situation, and even as we write this blog, new information continues to emerge. The pace of developments makes it challenging to capture a complete picture in real time, but we are actively monitoring updates and adjusting our perspective as the landscape shifts.
What Was Announced?
The administration unveiled a new tariff structure that includes a 10% universal minimum tariff on all imports and additional country-specific surcharges. While the 10% base rate was expected by some, the extra tariffs—based on a "reciprocal" formula—took markets by surprise.
For example, China faces a new reciprocal tariff rate of 34%, bringing its total tariff burden to 54%[1] when combined with existing duties. The EU faces a 20% rate, and Japan 24%.[2]
Importantly, Mexico and Canada were exempted from the initial reciprocal tariff list.
What Does This Mean for the U.S.?
In the short term, this policy shift introduces significant uncertainty. Tariffs are essentially a tax on imported goods, which can raise costs for both businesses and consumers. Sectors heavily reliant on global supply chains — such as tech hardware, apparel, and industrial manufacturing — may face immediate pressures. More broadly, higher input costs could weigh on consumer spending, hiring decisions, and business investment.
What Does This Mean for Other Countries?
Many countries were taken aback by both the scale and the methodology behind the U.S. tariff announcement. While the policy leaves room for negotiation, the global response is beginning to take shape.
Notably, China has announced a reciprocal tariff of 34% on U.S. goods, set to take effect on April 10th.[3] This move raises the stakes and adds to the uncertainty surrounding future trade dynamics between the world’s two largest economies.
At the same time, the U.S. chose to exclude strategic sections such as semiconductors and pharmaceuticals, signaling a potential willingness to find common ground in areas vital to global supply chains and technological leadership.
How Has the Market Responded?
Markets sold off sharply following the announcement. The S&P 500 fell over 4.5%, and the Nasdaq dropped 6%. Volatility spiked as well — the VIX curve steepened, signaling a sharp increase in investor uncertainty.
Amid the selloff, the 10-year Treasury yield declined from 4.19% to 4.05% (as of 4/3/25), offering some relief to intermediate-term fixed income assets, which benefited from the downward move in yields.
Does the Velocity of the Sell-Off Indicate the Economy is Structurally Broken?
The speed and severity of the recent market sell-off may feel like something in the economy has fundamentally broken. But we don’t believe that’s the case. Rather, we see the volatility as a response to uncertainty, not a sign of structural weakness.
At the heart of the market’s reaction is a lack of clarity around the true objective of the new tariff policy. Is the goal to:
- Raise Revenue — Estimates suggest tariffs could generate $500–$800 billion, but this approach acts as a regressive tax on consumers and businesses.
- Reshore Jobs — Onshoring may boost long-term resilience, but it comes with short-term disruptions and costs that are hard to price.
- Open Foreign Markets — Using tariffs as leverage for trade negotiations could work, but the methodology has raised questions abroad, making outcomes harder to predict.
Without a clear goal or timeline, businesses and investors are left guessing — delaying hiring, capital allocation, and strategic decisions. This lack of direction, not economic collapse, is driving much of the market’s discomfort. Clarity and confidence in policy direction will be key to restoring stability.
What Will Help Stabilize Markets?
Markets are looking for clarity and progress on trade negotiations. Encouragingly, the executive order provides flexibility: the rollout is staggered (April 5 for base tariffs, April 9 for country-specific duties), and language in the order allows for reductions if countries take “significant steps” toward reciprocal trade.
Investors are also closely monitoring the potential for fiscal stimulus, including tax relief proposals, and looking to the Federal Reserve for guidance. While the Fed’s most recent projections (dot plot) suggest two rate cuts in 2025, markets have priced in a more aggressive easing path, now anticipating four 25-basis-point cuts by year-end — a clear sign of growing concern over the economic outlook.[4]
In addition to monetary and fiscal policy, upcoming discussions around regulatory reform may also play a role in supporting growth by reducing barriers for businesses and encouraging investment.
Things We Are Watching
- VIX as an opportunity signal: Historically, investors who deploy capital during elevated volatility (high VIX) tend to see stronger long-term returns. The recent spike may present opportunity for long-term investors.
- Corporate credit markets: So far, the bond market — particularly high yield credit — has been relatively stable. Spreads have widened, but not to levels signaling systemic stress. However, if spreads begin to widen significantly, it would be an important development to watch closely.
- Earnings revisions: We’re monitoring how analysts revise 2025 earnings expectations, particularly for sectors with significant international exposure – approximately 41% of S&P 500 company revenue is derived from outside the U.S.[5]
- International diplomacy: The pace and tone of global responses — especially from Europe and Asia — will be key to determining whether this becomes a prolonged trade dispute or a short-lived negotiation tactic.
- U.S. budget negotiations: Ongoing discussions in Congress around tax and regulatory relief could play a meaningful role in supporting growth. Pro-growth policies tied to fiscal legislation may help offset some of the economic drag created by trade tensions.
Final Thoughts
Periods of volatility like this remind us of the importance of long-term thinking and disciplined portfolio strategy. While headlines can be jarring, markets often overshoot on fear and recover once clarity returns.
As Warren Buffett has famously said, “Never bet against America.” Time and again, the American people and corporations have shown remarkable resilience, adapting to new challenges, evolving through uncertainty, and ultimately continuing to grow.
We still have the world’s largest and most dynamic economy, a strong labor force, and many of the most innovative and globally competitive companies. While the path forward may be bumpy, history has shown that staying invested through periods of stress has consistently rewarded long-term investors.
The speed of today’s news cycle is why it’s important to remain calm. Rapid developments can lead to sharp movements in the market – both upward and downward. Taking a measured, thoughtful approach allows us to respond strategically rather than react impulsively.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
[1] White, Rob. “Goods Imported from China Are Now Facing a 54% Tariff Rate.” NBC News, 2 Apr. 2025, https://www.nbcnews.com/business/economy/goods-imported-china-are-now-facing-54-tariffs-rate-rcna199401.
[2] Wilson, Rachel. “These Are the Hardest-Hit US Trading Partners under Trump’s Tariffs.” CNN, 3 Apr. 2025, www.cnn.com/2025/04/03/business/trumps-reciprocal-tariffs-countries-list-dg/index.html.
[3] Xiao, Josh, and James Mayger. "China Imposes 34% Tariffs on All US Imports as Retaliation." Bloomberg, 4 Apr. 2025, https://www.bloomberg.com/news/articles/2025-04-04/china-imposes-34-tariffs-on-all-us-imports-as-retaliation.
[4] Min, Sarah. "Traders Betting Fed Will Cut Rates at Least 4 Times This Year to Bail Out Economy." CNBC, 4 Apr. 2025, https://www.cnbc.com/2025/04/04/traders-betting-fed-will-cut-rates-at-least-4-times-this-year-to-bail-out-economy.html.
[5] Butters, John. “Earnings Insight.” FactSet Research Systems, 28 Mar. 2025, https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_032825.pdf.