What Happened

Wednesday, 2 April 2025, is a day President Trump declared “Liberation Day”—but it was anything but liberating for global markets. Equity prices saw their sharpest single day drop since 2020, triggering a wave of risk aversion across asset classes.

While the reintroduction of tariffs wasn’t entirely unexpected, the scale and severity certainly were. The Trump Administration announced a minimum 10% universal reciprocal tariff on nearly all exports to the US. Major trade partners were hit even harder: China (54% cumulatively), the EU (20%), Japan (24%), and South Korea (25%).

To put this in perspective, the weighted average US import tariff has jumped from 2.5% at the end of 2024 to 24%—levels last seen in the 1920s. As the world’s largest goods importer, accounting for 15% of global trade, this is a seismic shift. Economically, the move equates to a 2% national income tax hike—a significant burden for US consumers.

What’s Next?

The ultimate impact hinges on how long these tariffs stay in place, whether they’re dialled down through negotiation, and the scale of retaliatory measures from global trade partners.

The key question: Are these tariffs ideological or a bargaining chip?

Given Trump’s past focus on stock market performance and economic growth, we lean toward the latter. These aggressive tariffs likely serve as a high-stakes negotiation tool. Although Trump has publicly downplayed the negative fallout, he’s previously acknowledged the link between falling markets and weaker economic sentiment. In his first term, he noted that a 10% equity drop can shave 0.6% off GDP via the wealth effect—where people feel poorer and spend less, even if their actual income hasn’t changed.

What About South Africa?

The 30% tariff imposed on South Africa was more severe than anticipated. That said, SA hasn’t exactly been on the friendliest footing with the US, which poses broader diplomatic risks.

Despite the headlines, the direct economic impact may be more muted than expected. Only 8% of South Africa’s total exports go to the US, and 75% of that is in commodities—particularly precious metals like gold and platinum. If these are exempt (as many expect), the SARB estimates the net impact on GDP could be between -0.2% and -0.3%.

The sectors most at risk are soft commodities (fruit, wine) and automotive, which are important for both jobs and foreign investment. If tariffs stay in place, the consequences for these sectors could be severe.

What About Your Investment?

In the short term, everything sold off—equities fell, and bond yields rose (meaning prices fell), both locally and globally. Even crypto has taken some pain. But history shows these types of market shocks tend to settle, and more often than not, the majority of market recovery happens in a handful of days. That’s why, the best thing we can do now is to remain invested and stick to our strategy. Soon, markets will refocus on fundamentals and company earnings.

While most markets are down, US equity and specifically the “Magnificent 7” have been hit the hardest. It is times like these that diversification pays off more than ever. In all our investment strategies, the exposures to these areas of the market have been carefully managed over the last few months.

Exposures to defensive equities (companies with robust free cash flow, low debt, and business models) have helped temper the impact, along with some rand depreciation in local strategies.

With volatility comes opportunity too. But the goal remains to keep emotion out of investing, focus on the big picture, and navigate uncertainty with a cool head and disciplined strategy

If you have any questions, please reach out to your Financial Planning Specialist.