The tariff dispute enters the next round

Four months ago, US Presi­dent Donald Trump surprised everyone with the intro­duc­tion of so-called “reciprocal” tariffs, which immedia­tely led to massive reactions on the finan­cial markets. Fears of an escala­ting trade conflict and an economic downturn were clearly palpable. After a week, there was a backlash: on April 9, tariffs were reduced to 10% for many count­ries, with China follo­wing suit a month later. The markets breathed a sigh of relief, and initial bilateral agree­ments with count­ries such as the United Kingdom (10%), South Korea, Japan, and the EU (all 15%) gave rise to cautious optimism about a favorable outcome to the trade war and a conclu­sion to the vexed issue of tariffs.

However, on July 31, the US govern­ment once again took a confron­ta­tional course. Tariffs were signi­fi­cantly increased for some count­ries, inclu­ding 25% for India, 35% for Canada, and 39% for Switz­er­land. Accor­ding to Yale Univer­si­ty’s Budget Lab, this brings the weighted average US tariff rate to around 18%.

Finan­cial markets under pressure

The new tariff threats contri­buted to global stock market losses of 2–3% on August 1. The Swiss market is also likely to open with signi­fi­cant losses on Monday after the national holiday. In addition to the new trade barriers, disap­poin­ting US labor market data also contri­buted to the uncer­tainty. In addition, the tariff dispute is limiting the Federal Reser­ve’s monetary policy flexi­bi­lity.

In addition, the tariff dispute is limiting the Federal Reser­ve’s monetary policy flexi­bi­lity. Fed Chairman Jerome Powell recently resisted pressure from the White House and left key interest rates unchanged.

What happens next?

The new tariff announce­ments should prima­rily be seen as a negotia­ting tactic. Experi­ence in recent months shows that after a short-term escala­tion, the effec­tive tariffs were usually intro­duced within a range of 10–20%. We expect Switz­er­land to also reach an agree­ment and ultim­ately end up in this range – possibly before the 39% tariffs come into force.

We continue to assume that US tariffs in this range will dampen global growth, but will not bring it to a standstill. The vast majority of affected compa­nies will be able to pass on the additional costs to US consu­mers in the medium term.

Don’t overlook positive momentum

Despite the uncer­tainty surroun­ding the tariff conflict, there are also rays of hope: the Inter­na­tional Monetary Fund recently raised its global growth forecasts, supported by lower interest rates, expan­sio­nary fiscal policy, and favorable finan­cing condi­tions. The additional growth momentum provided by invest­ments in infras­truc­ture and advances in artifi­cial intel­li­gence should not be overlooked.

Stay invested

Despite the current setbacks, our medium-term outlook for equities remains construc­tive. We also see no need to adjust our portfo­lios. Our portfolio compa­nies are well protected against US trade barriers, as most of them produce locally or have signi­fi­cant pricing power. Service compa­nies are only indirectly affected anyway.

Wait before making new purchases

In the short term, however, increased caution is warranted. Follo­wing the sharp impro­ve­ment in market senti­ment since April and given the fragile geopo­li­tical situa­tion, profit-taking could set in. We there­fore recom­mend waiting before making any new positions at this time.

Fear and Greed Index (in April “extreme fear,” in July “extreme greed,” now neutral)

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Images/graphics: The graphics were created by Tareno AG from public market data.