Markets became nervous that the new president’s 25% tariff on imports from Canada and Mexico and 10% levy on Chinese goods could trigger a trade war that would alter global trade dynamics.

Gold’s price reached £2,275 per ounce today (3 Feb), up from £2,103 at the beginning of January.

Funds such as Baker Steel Gold & Precious Metals, Jupiter Gold and Silver, and BlackRock Gold & General benefited the most from this surge in demand, beating all other Investment Association funds with total returns of 17.4%, 17.3% and 16.6% in January.

See also: Global markets fall as Trump tariffs spark trade war concerns

Following close behind them was Charteris Gold & Precious Metals, Quilter Precious Metals Equity, and Ninety One Global Gold, which were up 16.3%, 16.2% and 16.1% respectively throughout the month.

And gold’s rally could have further to climb yet, with many unknowns still lingering over how the affected countries may react – not to mention the nations that could yet have tariffs placed on their goods.

Russ Mould, investment director at AJ Bell, said: “The prospect of a full-blown trade war has spooked investors as they weigh up the prospect of widespread retaliation by countries on the receiving end of Donald Trump’s tariff frenzy,”

“Affected countries aren’t going to take the hit lying down and a tit-for-tat scenario is now looking real. That could result in higher inflation and put a stop to further interest rate cuts for the time being – exactly the opposite of what equity investors want to happen.”

See also: Baillie Gifford drops sustainable tag from £159m monthly income fund

On a sectoral level, IA Latin America had the best month in January, rising 11.4% on average thanks to its high exposure to commodities. Funds in the sector collectively hold over a third (35.3%) of their assets in basic materials and industrials.

But IA Latin America’s strong month could be short lived, according to Ben Yearsley, investment director at Fairview Investing. After being the worst performing sector of 2024 (falling 25% on average), last month could be a “dead cat bounce,” he said.

India delivers worst returns

Commodity portfolios may have had a strong start to the year, but IA India funds suffered the worst returns in January as the nation forecast its slowest economic growth in four years.

The latest Economic Survey projected gross domestic product to grow by 6.3% to 6.8% over the coming year, down from 8.2% last year.

Funds in the IA India sector fell 5.2% on average throughout January, with some dropping further than others.

Invesco India Equity was the worst performing fund of the month, with returns dropping 10.6%. It was followed by Ashoka Whiteoak India Opps and Comgest Growth India, which fell 9.6% and 9% respectively.

The measures, announced by US President Donald Trump over the weekend, see a 25% tax placed on goods from Canada and Mexico, and 10% on imports from China.

In response, Canada has already announced a tariff on US goods while Mexico and China are also expected to retaliate.

At 11:45am, the FTSE 100 had fallen 1.2% since the start of the day’s trading, following similar falls overnight in Asian markets.

See also: GAM Investments hires Janus Henderson management trio

Richard Flax, CIO at Moneyfarm, says investors are increasingly concerned that these moves could trigger a cycle of retaliatory tariffs, escalating into a full-scale trade war.

“With the new administration taking a more aggressive stance than some had anticipated, markets are now reassessing his previous rhetoric to anticipate the administration’s next steps,” he says.

“The president has long held the view that import tariffs could help fund the federal budget as an alternative to raising taxes. Now, emboldened in his second term, his administration appears more determined to pursue this strategy, having taken a more measured approach during his first term.

“The initial market rally following Trump’s re-election was driven by optimism over deregulation, with investors largely downplaying the risks of protectionist policies. However, the rapid implementation of tariffs – including those targeting key allies – has forced markets to consider the economic consequences.”

He added attention will now shift to Europe, following Trump’s comments that tariffs on the EU are “definitely happening”.

“For American consumers, these tariffs are expected to be inflationary, exacerbating the financial strain from the high inflation seen between 2022 and 2023. These moves also raise questions about the Federal Reserve’s ability to cut interest rates in the near term. Given the heightened uncertainty, the Fed is likely to hold rates steady, opting to assess market conditions before considering any adjustments.”

PA event: PA Live: A World Of Higher Inflation 2025

According to AJ Bell investment director Russ Mould, markets had assumed that Trump would talk tough on tariffs before backing off when he got a deal. Therefore, his plan to act first and then talk has come as a “nasty surprise” to share prices around the world.

“Trump’s launch of tariffs in 2018 did raise revenues for America but US corporate profits took a hit that year and America’s S&P 500 index fell by a fifth, so markets have understandably taken fright this time around.

“Weirdly, stockmarkets have begun Trump’s second term in boisterous form, in marked contrast to 2016’s election result when they approached the Republican candidate’s win with caution. Ultimately, the S&P 500 gained 56% during Trump’s first term, but that came with a big wobble in 2018, when the index lost 5% overall and endured a mini bear market in the autumn, as threats of tariffs on China became reality.

“America’s tax take did benefit, as customs duties doubled in short order. The tattered state of US federal finances, where the debt is far higher now and the interest bill is surging, means this offers some good news, from an American perspective.”

However, these funds came bounding back in 2024, with IA China becoming the fifth-best performing Investment Association sector of the year as returns leapt 13.8%.

This strong performance contrasted with prior years, with eleven funds making total returns upwards of 20%, and only two portfolios – Guinness China A Share and Fidelity China – reporting losses.

See also: Is China at a turning point, or will it disappoint yet again?

It begs the question: should investors be re-considering an allocation to China funds within their portfolios? Those with a sturdy risk appetite should certainly be eyeing up the sector, according to Chelsea Financial Services managing director Darius McDermott, who said China has some of the highest return potential on the market this year.

Bold stimulus plans from the People’s Bank of China (PBoC) are what propelled Chinese equities in 2024, and further measures to revive China’s economy and stabilise its property market are expected in the months ahead. These new stimulus announcements could again push China funds to new heights, according to McDermott.

See also: Chinese markets soar following announcement of ‘aggressive’ stimulus package

Yet the readjustment last year was sharp and fast, making it easy to miss. The IA China sector shot up 20.7% in the week following the PBoC’s announcement in September before levelling out, where it has stayed ever since. Investors who want to bank on another round of stimulus plans stimulating the market should act fast, or risk being left behind, McDermott warned.

“It shot up in a very short period of time, so if you’re waiting for another stimulus announcement, be ready to pull the trigger, because it won’t wait for you,” he added.

Tariffs could extinguish hopes for growth

There is one overbearing factor that could turn China’s outlook from hopeful to grim – tariffs. Trump’s proposed 60% tariff on Chinese imports to the US could offset the positive sentiment injected by upcoming stimulus announcements and plunge China funds’ returns back into the red, according to McDermott.

See also: How will Trump’s tariffs impact markets?

Until further details are shared on the extent of tariffs and stimulus plans, the potential outcomes for China funds remains stark. Investors stand to make some high returns from the Chinese market in 2025, but could equally lose just as much, according to McDermott.

“You can’t have a low risk way of investing in China. If you’re investing in China, you are seeking superior returns, and for that you must expect superior risk,” he added.

“If Chinese equities went up 40% this year I wouldn’t be surprised – but equally if they went down 40% I also wouldn’t be surprised. When you’ve got such a wide spread of potential outcomes, it really shows the inherent volatility in that market.

See also: China’s AI breakthrough causes US tech stock tumble

“There is more stimulus to come after the tariff position is understood, and that could be a catalyst as it was last year for a sharp upward tick. But the lingering threat of course is China’s interest in Taiwan – that question mark refuses to go away.

“And with the Communist Party of China becoming more authoritarian under Xi Jinping, all those question marks still have people feeling uncomfortable about investing in the region.”

Despite investors’ hesitancy to reallocate to China, Ben Yearsley, director of Shore Financial Planning, said China funds are “cheap and fascinating”. Share prices in the region have dropped sizably amid the downturn of the past few years, presenting an appealing entry point for those with the right risk tolerance.

See also: A World Of Higher Inflation 2025

Yearsley is continuing to buy funds such as Fidelity China Special Situations and Matthews China Discovery, which are up 18.1% and 16.6% respectively over the past year.

The former is trading at a 12.7% discount to its net asset value (NAV), which could provide investors with a slight buffer should returns tumble.

Equities in the US continued to defy gravity in 2024, rising 26% in sterling terms to back up a 19% increase in 2023.

As we move into 2025, some of the economic tailwinds that propelled the market higher in 2024 are receding. The rate of monetary policy easing is slowing, inflation has become sticky, long-term interest rates have swung upward, and the US economy is slowing.

Even more importantly from a sentiment standpoint, spending on artificial intelligence hardware is moderating.

Brian Colello, an equity strategist for the technology sector at Morningstar, said: “Spending on AI graphic processor units and hardware is less likely to provide anywhere near the massive positive surprises we saw in 2024 as this fast-moving megatrend is better understood.”

This time last year, I described the US equity market as running not too hot, and not too cold. Following the 2024 rally, the backdrop today is somewhat different with valuations above long-term averages, putting more pressure on US companies to deliver on their earnings forecasts.

But the biggest wild card in the first quarter will be what President Donald Trump may or may not do regarding his assertions to implement new tariffs on imports.

How much of this tariff talk is campaign trail rhetoric? How soon will these tariffs be implemented? How big will they be? What countries and products will be taxed? And just as importantly, what countries and products may be excluded?

If we look back at Trump’s pledges from his past presidency, of the 100 or so promises he made to the electorate in 2016, around 25 were enacted, another 25 came to pass but with amendments, and around half never made it to legislation.

As ever, it is helpful to assess what is priced into US equities via the intrinsic valuations of the more than 700 stocks that trade on US exchanges. Our estimates show a 4% premium to our fair value estimates.

While this might not sound like much of a premium, the market has traded at this premium level or higher less than 10% of the time since the end of 2010. With the market trading at the high end of our fairly valued range, we are becoming progressively cautious, and positioning is increasingly important.

There are areas of interest in the US, despite this headline valuation. Our assessment of small-cap stocks are they trade at a 14% discount to fair value.

There is also divergence across sectors.

Real estate was the second most undervalued and, following a sluggish 2024, is now the most undervalued.

By contrast, Utilities was one of the more undervalued sectors coming into the year. In 2024, the sector rose almost 27% as utilities became a second derivative play on AI growth; AI requires multiple times more electricity than traditional semiconductors. As such, it is now one of the more overvalued sectors.

This last fact could impact your view on infrastructure equity funds which are popular among asset allocators in the UK.

As the Chinese zodiac turns to the Year of the Snake, investors are left wondering what the new year holds for its equity markets.

Traditionally associated with wisdom, strategy, and adaptability, the snake offers a fitting metaphor for navigating the twists and turns of China’s economic landscape and geopolitical environment.

Trade war with Trump

China’s growth paradigm since late 2020 has been a two-speed model – a very strong export machine with poor domestic consumer demand. Its trade surplus hit a record high of about $1trn in 2024, while its 10-year government bond yield hit a record low of 1.6% with its economy trapped in a deflationary cycle with weak consumer confidence.

President Trump’s re-election and the prospect of a new trade war will threaten the sustainability of export growth, as exports to the US account for about 3% of China’s GDP.

How the forthcoming trade war is fought matters a great deal. A modest and gradual increase in tariffs is unlikely to derail export growth, but a strong and swift tariff increase scenario would put considerable pressure on economic growth in the foreseeable future.

The range of outcomes is very wide, and the path to the end game is highly uncertain. Investors need to stay agile and prepared for volatility and opportunities.

Bolder fiscal stimulus

The narrative changed significantly after the critical policy pivot in the last week of September 2024. While this was seen as an inflection point in stimulus policy, the follow-through so far has fallen short of investors’ expectations.

A crucial reason for the lack of a big bazooka so far is that policymakers don’t yet know which one to bring out. The size of the bazooka is dependent on the severity of the trade war.

As Trump prepares to fire his initial shots after being formally sworn in, they will assess and adjust the size of the stimulus accordingly, and the National People’s Congress in March will offer a timely occasion for them to do so.

Much bolder fiscal stimulus focusing on boosting domestic consumption would improve consumer confidence and rekindle the animal spirits.

Capital market reform

One policy directive that investors have not paid enough attention to are Beijing’s plans to “invigorate the capital market” by “using the capital market as a lever (to boost economic recovery)”. A better and more efficient capital market serves to achieve two important goals. 

Chinese households firstly need a new avenue to store, invest, and grow wealth. This role was previously fulfilled by the property market.

House ownership is high, and 60% of household assets sit in property. The best days of the property cycle are behind us, and the negative wealth effect of the property downturn is hurting consumers’ willingness to spend.

A deep, efficient and transparent domestic capital market with a strong pool of high-quality public companies that can deliver good long-term shareholder return is a very convincing and much needed alternative.

Another important problem that needs fixing is the state-owned banks’ ineffective and wasteful lending driven model, which is no longer fit for purpose in a technology and innovation driven stage of growth.

The bank lending model works fine when growth is driven by funding manufacturers with tangible plants and equipment. However, when the new sources of growth are mostly in innovative industries with more intellectual property and intangible assets, a deep capital market with sophisticated risk takers from venture capital, private credit and equity, and patient long-term institutional investors plays a much more important role in allocating capital efficiently.

China’s efforts to reform its capital market would improve corporate governance, raise the quality of listed companies, and in turn, boost shareholder return.

Stimulus policy is more important than trade war

Trump’s recent re-election brings the trade war narrative back to the forefront of many investors’ minds. The Year of the Snake is going to be a tug-of-war between domestic policy stimulus and the trade war, which will bring plenty of good investment opportunities that may come with some manageable volatility.

How policymakers will apply  stimulus policy tools to boost consumer confidence to fight deflationary pressures, and respond to the trade war and its impact on export growth is the most critical driver of equity market returns in China.

The policy pivot at the end of September 2024 was a critical turning point. It signalled that at long last, the policymakers acknowledged the long-term damage of the deflationary pressure and poor consumer confidence and signalled their willingness to fight.

In essence, this put a floor on economic growth and asset prices. What remains to be seen is whether the policy goal is to merely arrest the downturn or to get the economic engine humming again.

A trade war would undoubtedly put pressure on external demand growth, but it could also serve as a much-needed final kick that policymakers need for unorthodox and bolder reflationary stimulus policies, which is a more important driver for asset prices in China.

Following Donald Trump’s US election win in November, fears of potential trade wars and supply chain disruption have grown sharply.

According to the survey of 98 CIOs, there is also a lingering unease about persistent price pressures and monetary policy responses.

Meanwhile, overvaluations and dominance of a few sectors or companies could create potential systemic risks.

See also: Yearsley: Financials ‘surprise winner’ of 2024

Dr James Cooke, deputy CIO at ARC, said that many of the risks are interlinked.

“Trade wars combined with a China slowdown could lead to heightened Taiwan tensions which would lead to fears over advanced node semiconductor manufacturing, which in turn would impact many of the Magnificent Seven. Inflation rising too much could force central banks to tighten monetary policy more aggressively and the money supply is a significant detriment to the return on risk assets.

“On the brighter side, there continues to be rather a lot of cash in money market funds or ‘dry powder’. We would not be too surprised to find 2025 is a year of heightened ‘animal spirits’ and increased M&A activity which tends to be good overall for equity prices, particularly of slightly smaller companies. Perhaps this means we will actually see the broadening out of equity markets that many managers talked about around this time last year.”

Despite the concerns around market concentration, the net sentiment towards equities has increased to 56%, up from 21% over the past 12 months.

However, the ARC survey found that sentiment towards both UK and European equities has fallen, while CIO enthusiasm for bonds has also waned over the last quarter.

Investors are on edge, grappling with uncertainty on multiple fronts as the US election fast approaches. With the outcome seemingly hanging in the balance, the potential impositions of blanket tariffs from a Trump presidency on all trade is concerning many. Such a move could spell trouble for the global economy, bringing potential implications for long-term geopolitical stability and fiscal discipline.

One significant tail risk we are monitoring is the impact of the US fiscal balance sheet. At around 4%, treasury yields are not overly concerning, but they reflect some uncertainty. While we do not anticipate a UK-like event in the US — a major bond sell-off akin to the Truss mini-budget moment — continued volatility in the bond markets leading up to and potentially beyond the election is likely.

While it is notoriously difficult to predict election results, and therefore subsequent policy of future administrations, the possibility of a Trump presidency focused on additional fiscal expansion and deregulation could push inflation higher, raising the yield of long maturity bonds as investors price greater long-run uncertainty in US bond markets. This ripple effect could inevitably be felt across the broader global bond market, as the US remains the benchmark for global fixed income.

See also: Morningstar: What does the US election mean for investing in China?

The potential imposition of blanket tariffs by Trump is especially concerning. While this could give a short-term inflationary boost to industries such as traditional energy, financials and defence, it could be disastrous for global growth over the long term. Take tariffs on China as an example. These have already led to a decline in US-China trade over the past few years and increased trade deficits with other countries. This rebalancing effect of blanket tariffs on US trade partners would complicate global trade dynamics.

The US economy has been sending mixed signals in recent months. The challenge lies in the core components of inflation, which seem inconsistent with the cut of over 1% the market expects from the Federal Reserve in the next 12 months. This creates a dilemma for the Fed, which must balance lowering inflation with a strong but potentially weakening labour market.

Historically, equity markets have shown more volatility during close and contentious elections. Given polling data indicates a tight race hinging on a few swing states, such uncertainty could spur heightened market volatility as investors react to polling trends and shifting political dynamics. While markets tend to calm after an election, investors should not assume smooth sailing in the immediate aftermath.

Policy changes, particularly those related to fiscal spending, taxation and regulation, could significantly impact sectors such as technology, energy and healthcare. leading to heightened market volatility as investors react to polling trends and shifting political dynamics.

Despite the noise, investors should remain steadfast: focusing on long-term fundamentals and preparing rather than predicting. Forecasting market responses to elections or economic data is fraught with risk. But discipline is needed — diversifying portfolios, managing risk and avoiding overreactions to short-term market moves.

While the election presents both short-term risks and opportunities, in line with past elections it is unlikely to have an impact on the medium-term expected returns of asset classes, but will stir potential short-term challenges.

While global bond yield curves may steepen globally pushing up longer term interest expectations, bonds remain an attractive asset class to hold with fears remaining around economic growth. We may also see volatility in equity markets as traders react to each other post-election, focus should be on the medium-to-long-term fundamentals — such as earnings and the discount rate — that will drive equity returns and ultimately client outcomes.

See also: Weekly Outlook: US election, UK and US interest rate decisions

Currency markets are also an area that may see volatility, especially if election results are delayed in swing states. However, we see little immediate threat to the US dollar’s status as the world’s reserve currency. Despite speculation, neither the euro nor renminbi are poised to replace the dollar.

Investors therefore should assess any risks within their portfolio and ensure they are resilient to adverse outcomes, while remaining flexible to seize opportunities that may arise during periods of extreme market stress.

Whether we face a Trump 2.0 presidency with potentially higher inflation or a Harris-led government which would likely be more of a continuation of the current administration, it is important to ensure that portfolios are diversified and robust.

By maintaining a disciplined, medium-term view and avoiding being swayed by the noise, investors can navigate the election with confidence, focusing on fundamentals rather than short-term volatility.

This article was first seen in our sister publication, PA Adviser

China has a knack for surprising the world, and recent developments have underscored the country’s accelerating technological capabilities.

While much of the global attention remains on the role of the US in the tech industry, China’s tech ecosystem is advancing rapidly, signaling a shift in global dynamics – even despite the 60% import tariff Trump has vowed to place on Chinese goods.

Catalysts for reflection

The proposed levy may not stunt tech’s growth in China, with Huawei recently releasing its Mate 70 Pro, a device that challenges conventional views about Chinese innovation and the global tech landscape.

Powered by HarmonyOS Next – a fully homegrown operating system – and a domestically produced chip, the Mate 70 Pro represents a significant step in China’s push for technological self-reliance. The chip, produced without reliance on Taiwan’s TSMC, demonstrates capabilities, such as near-5G performance, that were once thought to be years away for China.

Despite external pressures from US export controls, these challenges appear to have spurred China’s progress, showcasing a maturing domestic tech ecosystem. The Mate 70 Pro exemplifies China’s increasing independence in the tech space, signaling that it is no longer reliant on foreign supply chains to compete at the highest levels.

See also: How will Trump’s tariffs impact markets?

China’s drive for self-reliance extends beyond hardware to artificial intelligence. Alibaba’s Qwen, which launched QwQ, has made strides with a compact reasoning model that competes with larger counterparts.

At one-fifth the size of OpenAI’s GPT-3, QwQ demonstrates that efficiency and smaller models can be effective, challenging the idea that size directly correlates with capability. This progress shows that the gap between Chinese and American AI may not be as wide as many have assumed.

These advancements are underpinned by significant investments in education and human capital. With a substantial portion of Chinese graduates specializing in STEM fields, China has cultivated a pipeline of talent that is well-positioned to lead in industries requiring advanced technical expertise, such as AI, semiconductors, and renewable energy.

American decoupling

China’s rapid advancements, from the Mate 70 Pro to breakthroughs in AI and autonomous technologies, raise questions about the effectiveness of the American decoupling strategy.

While tariffs and restrictions aim to protect domestic industries, they risk insulating those industries from competitive forces that drive innovation.

See also: Will Trump’s return to the White House derail the green agenda?

Shielding industries from global competition could create a complacency risk, while China continues to leverage challenges as opportunities.

The broader trade landscape

Recent tariff proposals have brought trade issues into sharp focus. New proposals targeting key trading partners, including Canada, Mexico, and China, are aimed at addressing a range of global concerns.

While these tariffs might disrupt supply chains and increase costs in certain sectors, they also underscore how trade policy and tariffs continue to shape global economic interactions.

The global monetary system is another area where shifts are taking place. The growing discussion around alternative currencies by some international groups suggests that the landscape is evolving.

Tariffs and trade policies, while reinforcing the economic position of certain nations, can have ripple effects across global economies. As countries explore alternatives to traditional financial systems, the US strategy may need to consider these dynamics carefully.

Reeves raised an extra £40bn in revenue for the government through tax rises and announced a £70bn increase in spending on public services and infrastructure in her first Budget.

But measures as bold as these will not be needed again, she told the Committee yesterday, stating that the government have “drawn a line under the chaos and instability of the last few years”.

See also: Autumn Budget 2024: Ten key takeaways

“We’ve drawn under that now,” Reeves said. “There’s been a reset that means our public finances are now on a firm footing and the trajectory of public spending is much more honest.

“So we’re never going to have to do a Budget like this again. This was a once in a Parliament reset so that we start on the right foot.”

Gilt yields rose in the wake of Reeve’s sizable Budget – although AJ Bell investment director Russ Mould said they have everywhere, suggesting there is “a wider issue at work” globally – so she reassured the Committee that such sizable tax hikes will not be repeated.

See also: Autumn Budget 2024: Capital gains tax hiked to 24% in ‘blow for investors’

“In terms of whether we’ll be doing something similar in the future – no,” Reeves said. “This was a Budget of reset.

“We’re not going to be coming back with more tax increases, or indeed more borrowing. We now need to live within the means we’ve set ourselves in the budget and those allocations of spending totals.”

Could Trump derail Reeve’s growth plan?

Reeve’s also unveiled the Office for Budget Responsibility (OBR) latest forecasts during last week’s Budget, which predict positive economic growth over the next few years, including a 2% increase to GDP in 2025, and another 1.8% in 2026.

But the election of Trump could spoil these figures, according to the National Institute of Economic and Social Research (NIESR), who said his 10% tariff on all US imports could halve UK GDP.

Reeves said she would negotiate with Trump ahead of his inauguration next year and was “confident those trade flows will continue under the new president,” but members of the Committee questioned whether it was “realistic to influence a president who is so set on a course that is so well defined”.

See also: How will Trump’s tariffs impact markets?

Reeves responded: “I think it is too early to start making changes to forecasts for our economy because of the election of a president in the United States, but I would say this – our trading relationship and economic relationship with the United States is absolutely crucial.

“The US are our single biggest trading partner. Trade between our two countries is around £311bn a year, so of course our relationship is crucial and our special relationship obviously goes much beyond trade for our security and defense.”

Industry spokespeople such as IBOSS CIO Chris Metcalfe said Trump’s isolationist levies against the rest of the globe could lead to a trade war that “further dismantles the globalization narrative,” but Reeves said she will do all she can to convince the new president of the importance of free trade.

“We’re not just a passive actor in this. It’s a trade relationship with the United States and we will make strong representations about the importance of free and open trade not just between ourselves and the United States, but globally,” Reeves added.

“I am optimistic about our ability to shape the global economic agenda as we have under successive government.”

They are mostly targeted at China, with Trump proposing tariffs of at least 60% on Chinese imports, but he also intends to place a blanket levy of 10% on all other imported goods from around the world.

These measures could dampen already-struggling global growth and may be considered hostile by many countries, who in turn will retaliate with their own isolationist policies, according to Chris Metcalfe, CIO of IBOSS.

A trade war like this could send shockwaves through the global marketplace as countries rewire their supply chains and trading relationships.

And backing large economies such as China into a corner with crippling tariffs could force them to change the composition of the global marketplace as we know it, Metcalfe added.

He said: “China has various options available to it, and their strategy will be critical in shaping global market dynamics. I think it would be a mistake to expect the market reactions of the next couple of weeks to continue to play out for the rest of his presidency.

“As a Trump America becomes more isolationist and further dismantles the globalisation narrative, new relationships will be forged between countries and economic blocks, and it is too early to say how that will look.”

Will it backfire?

Lifting tariffs on all imported goods could be an easy source of income for Trump, who wants to lower taxes whilst simultaneously increasing spending.

But it could “counter the effect that Trump wants” if it leads to a resurgence in inflation, as Charlotte Daughtrey, equity investment specialist at Federated Hermes, expects.

“His proposed tariffs may be reflationary when the Federal Reserve is attempting to balance the need to bring down inflation without causing a stop to the resilient US economy,” she said. “This may impact the pace of rate cuts or perhaps push them back into a rate hiking cycle – something they are keen to avoid given the impact this had on markets back in the 1970s.”

The economic situation could worsen further if the US’s trading partners retaliate with their own counter-measures, which could reduce the nation’s GDP growth by between 1.3% to 1.8% over the next two years, according to the National Institute’s Global Macroeconometric Model.

Trump professed to be the most economically-adept candidate during the campaign, so he may want to tread carefully when implementing a policy that could ultimately backfire on the US economy.

Is it all a ploy?

Trump has already rattled global markets with his threat of sweeping tariffs, but it “may be a bargaining position” for him to use in trade negotiations, according to Garry White, chief investment commentator at Charles Stanley.

Even if Trump’s plans are less cunning, there is still a chance he may water down these levvies if it appears likely they will backfire on the US economy, added Zehrid Osmani, head of global long term unconstrained equities at Martin Currie.

He said: “The point to assess on tariffs will be whether Trump follows through with implementing them. There is the potential for Trump to not walk the talk he has been carrying on tariffs during the campaign trail, if his advisers manage to highlight to him the negative consequences of blanket tariffs on economic growth, inflation, and consumption, as well as the risk of a more hawkish stance by the Fed in that instance.”

Whatever the outcome, Henderson International Income trust manager Ben Lofthouse reminded investors that Trump’s tariff plans are still on the drawing board. They may well change over the coming months, so making a snap judgement in the immediate aftermath of his re-election may be ill-timed.

Lofthouse said: “It is hard to say what the impact on global markets and inflation will be yet as many of the potential tariff increases are considered by many to be negotiation positions to extract better terms of trade, so may not come to pass, but this will not be known for some time.”

The race became clear as Republican Donald Trump flipped battle ground states including Pennsylvania and Georgia early in the morning. With a victory in Wisconsin, Trump reached 277 electoral votes, officially winning the election.

During his campaign, Trump advocated for higher tariffs on China as well as other international trade partners, proposing a 10% tariff on all goods into the US. Trump has also voiced dissent against green energy policies and advocated for a greater return to drilling.

See also: Premier Miton’s Goodwin: Investors must ignore US election noise

Lindsay James, investment strategist at Quilter Investors, said these measures are inflationary and the overall “economic impact of this new Trump presidency is likely to be volatile”.

“Widespread tariffs will now likely be implemented, choking global trade in the meantime, while the deficit is likely to grow ever larger, at a time when markets are getting a little nervous about the sheer scale of spending,” she added.

“While the economy was perhaps the defining feature of this election for voters, an emboldened Trump presidency is likely to add fuel to the fire.”

Although Trump has claimed he could end the conflict with Ukraine in 24 hours, he has been against large funding packages to Ukraine. He also claimed he would let Russia do “whatever the hell they want” to NATO partners not meeting the Alliance’s spending commitments.

Trump focused on defence during his campaign, but this added protectionism will come at a cost, according to John Plassard, senior investment specialist at Mirabaud.

“The federal deficit could widen further under the combined effect of tax cuts and increased military spending,” he said. “On the geopolitical front, tensions are likely to intensify, especially with China and Iran, while transatlantic relations could become more transactional.

“If Europe had hoped for appeasement, it could find itself confronted by a more direct and demanding American diplomacy. In short, Donald Trump’s return promises a revitalised US economy, but at the cost of strained geopolitical stability and a record US deficit.”

These plans could add $7.8trn to the US’ national debt over Trump’s term, according to VT De Lisle America fund manager Richard de Lisle, which may benefit some sectors.

See also: Morningstar: What does the US election mean for investing in China?

“Such measures are likely to maintain current government infrastructure spending plans, sustain consumption and keep the US economy strong,” he added. “Combined with his fierce threats of tariffs, these measures should benefit domestically-focused manufacturers and industrials.”

Justin Onuekwusi, CIO at St. James’s Place, expects increased volatility – particularly among sectors that are tied to international trade such as technology and consumer goods. “On the other hand, his emphasis on deregulation and corporate tax cuts could give short-term boosts to industries like traditional energy, financials, and defence,” he said.

“US smaller companies could be more affected by any post-election volatility but we believe this to be a short-term concern. In our view, the valuation case for global small companies is currently strong and expect over the medium-term US small caps will do well.”

In terms of fixed income, Onuekwusi also expects heightened volatility across bond markets – particularly US treasuries “as sentiment adjusts to the result”.

“Possible higher inflation may also cause yields for long-term bonds to rise higher than short-term bonds,” the CIO explained. “This is sometimes seen as a signal for the start of a strong economic period but can also indicate a time of higher interest rates.

“As the US remains the benchmark for global fixed income, the broader global bond market may feel the ripple effects of this. We will continue to monitor these markets carefully and will adjust positioning should there be a material change in the outlook and opportunity set.”

Stefan Eppenberger, chief investment strategist at Vontobel, believes Trump’s presidency “will stimulate growth through expansive fiscal policy and deregulation, which may favour stocks over bonds”.

“However, excessive growth carries risks, potentially leading to higher interest rates, which could eventually weigh on both the economy and stock markets. Sector-wise, energy and financial stocks may benefit from lighter regulation.”

The election also saw Republicans reclaim the Senate, though the race for the House of Representatives is yet to be called as of 8am 6 November.

Trump became the first former US president that is a convicted felon following the ruling by the NY State Court on the hush money case involving Stormy Daniels. He was found guilty of 34 felony counts in this case.

Trump has also been indicted for federal election interference and election interference in Georgia following his loss in 2020, as well as an indictment for leaving the White House with classified national security documents.

In an increasingly fragmented world where greater competition is contributing to economic realignment and the US election is fast approaching, the European Union (EU) remains vulnerable to renewed global trade tensions.

Since 2018, when the region was subjected to US steel and aluminium tariffs and threatened with potentially crippling auto tariffs, the EU’s trade surplus with the US has grown significantly. Ex-energy, the US trade deficit with the EU now surpasses that of China, and this growing imbalance could well trigger a resurgence in US-EU trade tensions.

Despite being better prepared than it was in 2018, and against the backdrop of recent proposals to stem Europe’s competitive decline, we see five reasons why renewed trade tensions could be particularly economically damaging for the EU at this fragile time.

Size and importance of US export market

Despite rapid growth in the Chinese economy, the US remains the world’s largest global economy and the EU’s most important export market.

Given the size of the US economy, any increase in imposed tariffs would likely result in a reduction in the price received by an EU exporter and, hence, an improvement in US terms of trade at the expense of the EU.

See also: Is the ECB ‘behind the curve’ with ‘hesitant’ interest rate cut?

The EU is also a much more open economic region than either the US or China, with a total (extra-EU) trade share of close to 45% of GDP, compared to around 35% and 25% for China and the US respectively.

Given the importance of trade to the EU economy, the impact of higher tariffs imposed by its largest trading partner would be severe.

Rising cost of exports

Since 2017, EU productivity has continued to decline relative to the US In large part, the more recent deterioration reflects the substantial increase in energy costs borne by European producers following Russia’s invasion of Ukraine.

Higher tariffs effectively act as an increase in transport costs and would exacerbate the erosion in European competitiveness vis-à-vis the US and China.

Accelerated FDI outflows

The combination of higher tariffs and production subsidies, such as the US Inflation Reduction Act (IRA), could accelerate the outflow of European investment and production to the US. Since the US has adopted an industrial strategy, we have already seen a further decline in net foreign direct investment (FDI) flows from the US to the EU.

See also: Amundi CIO Vincent Mortier on tariffs: ‘There are always winners and losers…but the losers outweigh the winners’

The combination of tariffs and subsidies would provide strong incentives for European firms to relocate to the US, as these firms would stand to benefit from the subsidy while also avoid increased tariffs.

Such a dynamic would likely further reduce private investment in the EU from an already low base. This would have negative consequences for EU productivity and potential growth.

Asymmetric tariffs could exacerbate China excess capacity

The potential for asymmetric tariffs levied on Chinese exports could exacerbate excess capacity issues there, putting downward pressure on Chinese manufacturing prices and incentivise dumping of Chinese products on European markets.

This would further erode European competitiveness in its domestic market, as well as having deflationary implications.

These could prove difficult for monetary policy to address in the absence of extraordinary measures. A lack of policy support would likely result in a return to sluggish growth in the region.

Tariff uncertainty

Even in the absence of higher tariffs, uncertainty alone could weigh on sentiment and, in turn, domestic demand as households and firms take a wait and see approach. This dynamic played out during previous bouts of uncertainty.

See also: Are UK investors really turning their backs on Europe?

Moreover, sentiment in Europe could be further rattled by more confrontational US-EU relations given that the region has become much more reliant on the US for energy imports. In particular, EU LNG and crude oil imports from the US have risen from essentially zero in 2016 to 30% and 15% respectively.

Further erosion of European competitiveness

With the EU already facing economic headwinds and calls for more investment in order to boost growth growing louder, the prospect of renewed trade tensions with the US comes at a particularly difficult time.

For an economy still disadvantaged by high energy costs, even the prosect of higher tariffs has the potential to weigh on an already fragile economy. Whether higher tariffs do, in fact, come to bear remains to be seen, and the outcome of the US election and its resultant trade policy is still highly uncertain.

However, given the region’s growing trade surplus with the US and its resultant susceptibility to tariffs, the likely impact would be a further erosion of European competitiveness and be a headwind to growth.