100 days of Trump: Tariffs, taxes, and volatility

When Trump took office in January, his agenda was clear: immigration, tariffs, tax cuts, and deregulation, and there was a genuine economic optimism surrounding him at the time.

However, tariffs have derailed that enthusiasm. The tariffs announced on 2 April were seismic. Even after they were put on pause, they are the highest tariffs we have seen since the 1930s. Trade is the lifeblood of economic growth and an attack on global trade is in essence an attack on global growth.

The market’s reaction was not surprising. The S&P 500 experienced its worst first 100-day performance under any president since Gerald Ford in 1974. In our view, the subsequent pause in tariffs was a response to the politically intolerable market decline and rise in long-term US interest rates. Consequently, we believe the structural reasons for imposing the tariffs, such as re-industrialisation and reshoring US manufacturing, are likely to be somewhat scaled back.

Revenue, efficiency, and taxes

Tariffs also had another target: raising revenue to address the ever-growing government debt, which is a major issue not only for the US but for the world. In fact, interest payments in the US are now comparable to defence spending levels. However, if tariffs were to remain in place, they would do little to solve this problem. Another significant effort to reduce deficit, the Department of Government Efficiency (DOGE), has fallen short of its promised $2 trillion savings, with the likely figure closer to $150-$200 billion.

Turning to other policies, cutting taxes was another major promise from Trump, which is currently under consideration by lawmakers and is expected to come into effect in the second half of 2025. Deregulation is also expected to become a growing part of the narrative of the White House later in the year.

Immigration has also been a key agenda point and has been successful from a policy perspective. While there are long-term questions about its impact on growth, in the interim, it is likely to help keep the unemployment rate down as the labour supply tightens.

Where do we go from here as it relates to tariffs?

The economic damage will naturally depend on how long these tariffs remain in place and how high they go. From high-frequency data, we can already see a significant drop in business sentiment and consumer confidence. If these trends persist, they are likely to cause a material slowdown — possibly even a recession. It is important to note, the US economy heading into the year was resilient, therefore, a recession would be entirely man-made.

The thing about policy-induced recessions is that they can end just as quickly as they begin. History is a great guide here. In the 1980s, the Carter administration massively tightened credit growth to contain inflation. Growth slowed; markets fell. But just months later, they reversed course, loosened credit, growth rebounded, and markets rallied 35% — with no lasting damage.

And so, the risks are two sided. Trades deals can get struck that lower trade barriers across the globe, which would be a great outcome for the global economy. Alternatively, we have protectionist policies that become the norm and trade with China is permanently impaired.

Impact on US assets

What has been interesting over the first 100 days of Trump's presidency has been the reaction of the dollar and the US bond market. To provide some context, the US dollar has only fallen more than 10% three times in the last decade. Even during Trump's first term, there was a significant decline in the dollar.

The notion that the US could lose its reserve currency status seems exaggerated, as the US dollar still represents roughly 58% of global foreign exchange reserves held by central banks and remains the primary currency for trade. However, the US dollar does have its weaknesses. US growth outperformance and the surge of US tech company share performance have led to a significant inflow into US markets making the currency overvalued and hence vulnerable to a pullback.

The US bond mystery

Lastly, the behaviour of bonds since 2 April has been puzzling. Typically, risk-off events lead to a sharp drop in yields. However, following ‘Liberation Day’, US 10-year yields increased through April. There is no clear explanation for this spike in yields, although fiscal worries and hedge fund de-risking have been cited.

The fiscal deficit story has been prevalent for the past few years, therefore we do not think this has been the reason. Despite this, we believe that at current yield levels, bonds remain an important asset to own. If a recession occurs, bonds are likely to perform well.