When President Trump unveiled his aggressive new trade policy earlier this year, the goal was clear: rewrite the rules of global commerce in favour of the United States. But the aftermath has been anything but straightforward.
From ad hoc bilateral deals to shifting supply chains and market reactions, the global response has ranged from reluctant compromise to strategic realignment. The dust hasn't settled yet—but there's already enough on the table to assess what's working, what's faltering, and what it all means for investors.
A long and chaotic process
By announcing new tariffs on Wednesday, April 2, against virtually all foreign goods entering the United States, Trump aimed to pressure foreign countries into signing new trade agreements that are more favourable to the American economy. But the occupant of the White House quickly became disillusioned. Contrary to his sensational statements, leaders from all over the world did not rush to Washington to pledge allegiance to the United States.
However, the European Union and some countries, such as the United Kingdom, Vietnam, Indonesia, the Philippines and Japan, have found an arrangement.
The British economy is more reliant on services than on goods exports. That's why London quickly agreed to a 10% U.S. tariff in exchange for access to the U.S. market for 100,000 luxury vehicles and a few other specific British products, such as aircraft engines.
Taxes for Vietnam would hurt the U.S. fashion industry
For the Vietnamese economy, however, global trade in goods and access to the U.S. market are vital. However, maintaining trade flows between the two countries is also essential for U.S. companies that have established factories in Vietnam, as well as for U.S. consumers, particularly in the apparel sector.
Americans, who last year purchased 274 million pairs of shoes made in Vietnam, would have had to pay significantly more if the 46 per cent tax announced on April 2 had been applied. Such a tariff would also have eroded the benefits of American fashion giants. The agreement reached reduces the tariff to 20%, a level that preserves the competitiveness of Vietnamese factories, while being bearable for American companies and consumers.
External factors influenced Indonesia and the Philippines
Indonesia depends mainly on China for its foreign trade. But having an agreement with the United States reassures essential foreign investors. Especially since the country symbolically reduced customs duties to 19%.
This is also the price accepted by the Philippines, which is seeking American goodwill to continue benefiting from the United States' military protection.
Japanese agreement, Chinese détente
July 22 marks a turning point in the trade war. For the first time, an agreement has been reached with a major player in international trade and the world economy, Japan. Tokyo has agreed to a 15% U.S. tariff to preserve essential access to the American market, particularly for its car manufacturers.
As with all the other agreements already announced, this is a general framework that leaves many points unresolved. The American-British text thus consists of only a few pages. It is a declaration of intent rather than a real trade agreement that settles all possible disputes.
In any case, with the temporary compromise reached in June with China and the conclusion in July of agreements with several Asian countries, including Japan, the United States has clarified trade relations with its partners on the other side of the Pacific. This may soon also be the case for transatlantic trade.
Europe accepts a 15% tariff
Increasingly isolated following the truce between the United States and China, as well as the agreement signed between Tokyo and Washington, the Europeans have finally accepted American demands.
While the European Commission had advocated for zero customs duties on goods crossing the Atlantic, it ultimately accepted a 15% tax on European products entering the United States. American products, however, will continue to arrive in the European Union without additional taxation.
Some European goods will be exempt from duties (most notably aircraft and spare parts) while steel and aluminium remain subject to a 50% tariff. The EU has also reportedly committed to investing $600 billion in the U.S. and purchasing $750 billion worth of American oil and gas.
Agreement avoids a potential recession
The agreement is a victory for Donald Trump. Divided between hardliners and countries desperate to preserve exports, Europe was not in a strong position to negotiate. The bloc agreed to 15% tariffs to avoid the 30% tax that was set to come into effect on August 1.
As with other deals, many details remain unclear. Still, the agreement averts a potentially dangerous escalation that could have triggered a recession in the EU immediately.
Investors welcomed the news: the euro appreciated slightly against the dollar, and European stocks trended positively. But while the deal averts the worst, 15% tariffs will still hurt European exports and economic activity in the medium term.
This is why we are not buying eurozone stocks as part of our portfolio strategy. However, several European equities remain attractive on an individual basis.
Changes in the world's trade routes
Since January 1, according to the announcements of new customs duties and their temporary suspension, exports have fluctuated enormously. Shipments to the United States exploded in the first months of the year in anticipation of the upcoming increase in customs duties.
Statistically, this derailed US GDP growth, which was negative in the 1st quarter despite a favourable economic situation on American soil. Some trade flows have also undergone rapid changes. To compensate for the decline in shipments to the United States, Chinese products have invaded Europe and Asia. German producers sell products that no longer cross the Atlantic to their European neighbours.
Trade uncertainty has also paralysed investment by companies that are waiting to see more clearly before setting up in a particular country. This phenomenon is not currently having a significant impact on global economic activity. But investments not made today will penalise tomorrow's growth, unless a catch-up effect occurs later. The increase in tariffs has also caused U.S. inflation to rebound, which will penalise household consumption if the movement intensifies for a long time.
It is challenging to distinguish between temporary factors and changes that are likely to become permanent. Global growth in the coming quarters is therefore uncertain.
Investors are pragmatic
However, while the economic situation remains opaque, investors appear determined to stay calm. Markets appreciate the resilience of economies to Trump's multiple attacks, which will help companies report results without (too many) unpleasant surprises.
In Europe, the decline in inflation is restoring purchasing power to consumers and pricing power to companies, allowing them to defend their margins. In the end, the US S&P 500 (+7.8% since the beginning of the year) and Nasdaq (+9.2%) indices are at the top, while the Stoxx Europe 50 (+8.2%) is not far behind.
If we stay away from the Eurozone as part of our portfolio strategy, it is not too late to buy U.S. equities. See below our complete asset allocation strategy.
