When the U.S. administration unleashed tariffs on the rest of the world on Liberation Day, it rattled the financial markets. Since then, many tariffs have been dialed back or put on hold, leading to the equity market rebound. However, the tariff situation is far from over and remains a focus as global trade negotiations continue to evolve.
Here is an overview of how U.S. trade policy is shifting global dynamics:
First, Why Tariffs?
While the U.S. administration hasn’t formally outlined its full rationale, President Trump has long endorsed tariffs as a way to strengthen the U.S. position. The goals behind broad-based tariffs may include:reducing the trade deficit (increasing exports and decreasing imports),supporting U.S. manufacturing and on shoring, securing supply chains, countering unfair trade practices, raising U.S. Treasury revenue and pressuring countries into negotiations.
What Are the Potential Impacts of These Tariffs?
The tariffs have introduced broader economic uncertainty, given their potentially wide-ranging effects, including:
1. Inflationary pressures — Tariffs act as a tax on imports. U.S. importers are responsible for paying the tariff—collected by the government—a cost that is expected to be passed on to the end consumer, leading to higher prices.
2. Trade & supply chain disruptions — Tariffs disrupt global supply chains and production cycles. Until now, the uncertainty has made it difficult for businesses to plan, invest or maintain stable supplier relationships. Tariffs can slow trade volumes, as we witnessed between the U.S. and China in April.Outbound Chinese shipments to the U.S. fell by 21 percent (year on year) due to the temporary 135 percent tariff put on many Chinese goods.1
3. Corporate earnings pressure — Firms affected by the tariffs face rising input costs and supply chain complications, which can shrink profit margins and undermine business confidence. Sectors reliant on global trade may respond by cutting costs, potentially leading to increased layoffs and higher unemployment.
4. Recessionary headwinds — Together, the increased costs, supply chain disruptions and corporate earnings pressures create headwinds that can slow economic growth. Consumer spending accounts for roughly 68 percent of U.S. GDP, so rising unemployment, higher prices and increased uncertainty can reduce purchasing power. This, in turn, can slow business activity, further fuelling the headwinds.
For many decades, the world has operated its trade on the basis of a nation’s “comparative advantage”—the idea that countries should specialize in producing goods they can create more efficiently or at a lower cost than others. This system has allowed for greater global efficiency and lower prices for consumers.
Critics also argue that many of the perceived U.S. tariff objectives may be aspirational. On shoring manufacturing would requires significant infrastructure investment, which is capital-intensive and would take years to build. For many products, U.S. manufacturers simply can’t compete with the low input wages of developing countries. One estimate suggests that producing an iPhone in the U.S. would cost about US$3,500.2 While globalization has helped lift the living standards of many nations abroad, we shouldn’t overlook that developed countries like Canada and the U.S. have also benefited tremendously from lower consumer prices.
What Should Investors Do?
In the coming months, developments surrounding the tariff and trade situation are likely to continue unfolding, and investors should be prepared for related market volatility. Yet, periods of disruption are a recurring feature of modern capital markets. While the current environment may feel uncertain, history has shown that free-market economies are remarkably resilient and capable of adapting over time. This time is likely no different.
1. https://www.cnbc.com/2025/05/09/chinas-exports-jump-us-tariffs-imports-tumble.html;
2. https://www.cnbc.com/2025/04/11/heres-how-much-a-made-in-the-usa-iphone-would-cost.html#
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