The Trump administration’s renewed tariff offensive has sparked volatility across global markets, raising concerns over inflation, consumer sentiment, corporate investment decisions, and broader international relations. As uncertainty deepens, investors are left questioning: What are the macroeconomic forces driving this turbulence? Which key variables will shape future market trends? And how can one strike a balance between resilience and growth in such an environment?
In this edition, AimStar Portfolio Manager Scott Cheng offers a comprehensive analysis—examining the policy implications, market reactions, and tactical asset allocation strategies. Gain clarity on the current landscape and explore professional insights to support more informed investment decisions.
I. The Macroeconomic Impact of Tariff Policy
United States
• Potential Negative Impacts:
Short-Term Inflationary Pressures:
The reimposition of tariffs is expected to drive up prices and intensify inflationary pressure in the short term. If implemented in full, the resulting inflationary impact could reach 1% to 1.5%. However, the actual outcome will depend on several factors: the final tariff rates, how much of the added cost is absorbed by suppliers and retailers, and the extent to which consumers can tolerate higher prices.Weakened Consumer Confidence and Slowed Investment:
Negative media coverage and persistent policy uncertainty may erode consumer sentiment and lead businesses to postpone key investment decisions. This, in turn, could weigh on overall economic growth—a primary concern currently reflected in market behavior.Export Risks and Multinational Vulnerability:
Retaliatory tariffs from trading partners could suppress U.S. exports and negatively impact multinational corporations, particularly those with significant overseas operations or a high dependence on global supply chains.
• Potential Positive Impacts:
Increased Government Revenue:
Tariffs may generate between $200 billion and $700 billion in federal revenue, depending on the final rates and their impact on total import volumes. These funds could be allocated toward deficit reduction or used to support new tax relief measures.Domestic Industrial Revitalization:
Over the long term, higher import costs may encourage investment in domestic industries, potentially supporting U.S. economic growth and strengthening supply chain resilience.
• Overall Assessment:
Short-Term Risks vs. Long-Term Uncertainty:
The near-term impact is expected to be largely negative. The long-term outlook will depend on how other countries respond and how U.S. businesses and consumers adapt.Strategic Negotiation Tool:
Given former President Trump’s negotiation style, tariffs may be leveraged as a bargaining chip. Many of the proposed tariffs could be revised or rolled back during negotiations.High Degree of Uncertainty:
With multiple variables at play—including ongoing trade talks and retaliatory measures—it remains difficult to forecast the full economic impact. Clarity may emerge in the next one to three months as trade negotiations between the U.S. and key partners evolve.Signs of Policy Softening:
Recent indications suggest some moderation in Trump’s tariff stance, possibly in response to domestic criticism, international pushback, and mounting pressure from financial markets. This shift is viewed by analysts as a constructive development.
Global Economic Impact
Broader Growth Risks:
The resurgence of tariffs and rising trade protectionism may dampen long-term global economic growth potential. Many countries may be forced to concede to U.S. demands, absorb part of the tariff burden, or risk losing access to U.S. markets—all of which present downside risks.Canada’s Exposure:
Tariffs targeting Canadian exports—such as auto parts, energy products, steel, aluminum, and softwood lumber—could inflict notable economic damage. Given Canada’s heavy reliance on U.S. trade, the country remains particularly vulnerable to economic shocks stemming from prolonged trade tensions.
II. Market Implications
Ongoing Volatility Driven by Policy Uncertainty
As the U.S. engages in continued negotiations with affected trading partners, markets are expected to remain highly sensitive to headlines. In the short term, investor sentiment will likely be shaped by policy developments, resulting in persistent volatility and a lack of clear directional trends. A sustained upward movement in equity markets may require more time and clarity.Focus Shifting to Economic Fundamentals and Corporate Earnings
More critical than immediate market reactions is whether tariff uncertainty, combined with potential government spending cuts, will materially impact underlying economic fundamentals. Any such impact could then filter through to corporate earnings—a key driver of equity market performance. As a result, investors will be closely watching upcoming macroeconomic data, including inflation figures, labor market trends, and GDP growth, along with earnings forecasts.U.S. Treasury Yields in Focus
Amid mounting fiscal pressures and elevated federal borrowing, U.S. Treasury yields have become a key market indicator. Fluctuations in yields may influence both government policy decisions and short-term market direction.Valuation Support and Potential Policy Tailwinds
On a more constructive note, recent market corrections have brought valuations back to more reasonable levels (see Appendix 1). Additionally, there is growing anticipation that the Trump administration may roll out more market-friendly measures later this year—such as further tax cuts or regulatory easing. Should trade tensions ease through negotiation and the probability of Fed rate cuts increase, these developments could provide the catalyst for a market stabilization and potential rebound.
Appendix 1: S&P 500 Forward Price-to-Earnings (P/E) Ratio
III. Investment Strategy
Stay Rational, Avoid Reactive Decisions
As Federal Reserve Chair Jerome Powell once remarked, navigating uncertainty is like “entering a dark room”—move too quickly, and you risk stumbling. The best approach is to pause, assess, and gather more information before taking action. In volatile environments, maintaining composure is key to preserving long-term capital.Adopt a Defensive Short-Term Positioning
In the near term, a more defensive asset allocation—such as increasing exposure to bonds and allocating more to defensive equity sectors—may offer greater stability amid market turbulence. At the same time, we remain closely attuned to macroeconomic trends and corporate earnings data. Should signs of policy stabilization or economic improvement emerge, we are prepared to recalibrate portfolios, selectively increasing exposure to risk assets.Commit to Long-Term and Diversified Investing
Market volatility and periods of fear are temporary. History has consistently shown that long-term investing delivers strong returns (see Appendix 2). Moreover, diversification remains one of the most effective tools for reducing portfolio volatility and navigating periods of uncertainty (see Appendix 3).
IV. Conclusion
Amid heightened policy uncertainty and a broader global economic slowdown, market volatility has notably increased. In response, we are adopting a more prudent and risk-aware investment approach to help navigate near-term fluctuations.
At the same time, we remain proactive in monitoring policy developments and corporate earnings trends. This allows us to ensure that our portfolios remain agile—ready to adjust asset allocation and sector exposure as needed. Through disciplined rebalancing and gradual optimization, our objective is to safeguard capital, support steady asset growth, and maximize long-term investment value.
Author by: Scott Cheng
Edited by: Sarah San
Published by: Vikki Zhao
Published Date: April 14, 2025
Last Edited: April 11, 2025
Estimated Reading Time: 8 minutes
The views expressed in this article are for informational purposes only and do not constitute investment advice.
Reproduction or redistribution is strictly prohibited without prior authorization. Please contact us for reprint permissions.
- Let us contact you
Investing with an AimStar's investment professional
Want expert advice at every step of your investing journey?
AimStar’s investment professionals can set you on the right course – and they can meet in-person or online.
AimStar Capital Group Inc. is a Canadian full-service Investment Dealer, regulated by Canadian Investment Regulatory Organization (CIRO) and a member of Canadian Investor Protection Fund (CIPF). As an independent firm, AimStar is built on a foundation of innovation, integrity, and client-centricity. They are committed to providing unbiased advice and dedicated to the client’s needs, helping them achieve their financial goals.
AimStar is recognized as a Wealth Professionals 5-star Wealth Management Firm for 2024, this award recognized AimStar has offered exceptional client experience, a proven investment track record, continuous innovation, and stringent regulatory compliance.