CIO update – tariff deadline

Casting our minds back to April, President Trump unveiled a dramatic trade policy: raise tariffs against all trading partners that the US buys more goods from than it sells to. However, in an equally dramatic fashion, he about-turned and the tariffs were paused until 9 July.

Reflecting this febrile policy atmosphere, markets were extremely volatile in April, although the pause gave some relief to investors and markets bounced back. More recently, unpredictability has raised its head again as the White House extends the pause by a further three weeks for 13 nations including Japan and South Korea – two of the largest partners for US trade.

The US President has been far from idle for the past three months. Deals have already been agreed with the UK and Vietnam, and discussions between India, Canada and China have reportedly had tangible progress. Moreover, some might take heart that the European Union did not receive a letter, a possible sign of a trade deal being afoot.

In any event, new tariffs being imposed is a headwind, and will act as a drag on economic growth. Increased costs for businesses will likely be passed down to consumers, meaning inflation rises. Nonetheless, slowing, but positive, growth has been our base case since late 2024 – this is still an environment supportive of risk-taking and growing corporate earnings.

Furthermore, while tariffs contribute to slowing growth, another aspect of Trump’s policy agenda is fiscal expansion: his ‘big, beautiful bill’. This tax cutting regime was given the green light by Congress earlier this month. While it’s expected to widen the government’s debt levels by $3 trillion over the next decade. it should be supportive of growth and earnings. 

Our base case remains that growth stays positive, and recession is avoided. According to the Bureau of Labor Statistics, the US economy added nearly 150,000 jobs in June, far exceeding expectations and reinforcing the health of the American population’s wallet. This reinforces our view of an economy with significant underlying momentum.

Our investment process still identifies favourable outcomes for equities, where we remain overweight. 

Data accurate as of 09/06/2025. Average is calculated using the mean. Equity returns represent price return, based off the S&P 500. 

In addition, loosening monetary policy should continue to provide an additional tailwind for risk assets. The above graph shows that the S&P 500 has historically returned 10% in the 12 months following an interest rate cut, on average. Where those rate cuts occur in environments of positive economic growth, outcomes tend to be even more favourable.

Markets may well experience further volatility over the next three weeks as the White House negotiates with its remaining trading partners yet to secure a deal. We accept policy volatility is a headwind. Nonetheless, we believe it is far more sensible to look through the noise and focus on the signals generated from fundamentals such as interest rates, economic growth and corporate earnings.

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If you are a Coutts client and would like to discuss market developments or your own investments with us in more detail, please contact your private banker.