Monthly House View May – Trade War: part two

Hans Bevers - Chief Economist

When the U.S. government recently announced new import tariffs, it marked a major turning point. Dubbed “Liberation Day,” the April 2 tariffs came at a time when international relations were already largely stalled.

The Monthly House View now replaces your trusted Monthly Market News. The extensive market analysis will now appear monthly and is a collaboration between the experts of Bank Degroof Petercam and Indosuez Wealth Management.

This announcement further inflamed trade tensions between the U.S. and the rest of the world, particularly China and the European Union.

The symbolic “liberation” and ensuing retaliatory measures highlighted the deepening rift between the U.S. and its trading partners.

Lower tariffs on the way?

The Trump administration initially proposed average tariffs exceeding 20% on imports to the U.S.—and over 100% on Chinese goods. However, under pressure from financial markets, business leaders, and growing public protests, the administration appears to be shifting its stance. There is now a real possibility that final tariffs on European goods will fall to 15% or less.

During the three trading days following April 2, stock markets lost up to $5 600 billion in value—roughly equivalent to the market cap of Apple and Nvidia combined. The announcement of a 90-day pause in the trade war helped reverse the trend. In the days that followed, the S&P 500 staged a strong rebound. From April 8 through the end of the month, the index recovered more than 10%.

Economic damage

Meanwhile, the impact on U.S. democracy and the economy continues to grow. As Bénédicte Kukla explains in her contribution, 15% import tariffs could be more damaging to U.S. economic growth than to that of other regions. In response, the eurozone—particularly Germany—and China are using their budgetary leeway to cushion the blow.

In his article, Francis Tan discusses how Asia is adapting to U.S. tariffs. The result is growing momentum and new opportunities for equities in the region. Our portfolios are well positioned to benefit from this shift, as we’ve increased exposure to Europe and emerging markets relative to the MSCI index.

Still confident in the U.S.—for now

The current challenges have led us to partially reduce our exposure to U.S. equities and decrease our holdings in U.S. debt. However, this does not signal a loss of confidence in U.S. assets.

There are three core reasons to maintain a premium on U.S. equities. First, the vast domestic market allows U.S. companies to generate high returns, especially in sectors like manufacturing, consumer staples, luxury goods, and technology.

In addition, the size and liquidity of U.S. capital markets remain unmatched, and the professional management of most companies continues to reassure investors.

Dollar depreciation

Finally, a word about the dollar. The recent depreciation of the U.S. currency is largely due to a revised growth outlook. That shift led us to adopt a neutral position on the dollar, as Lucas Meric outlines in his article.

Concerns that the Federal Reserve might lose its independence seem overstated. Legally, the U.S. president cannot dismiss key federal officials for political reasons. This protection, based on the 1935 “Humphrey’s Executor” ruling, ensures the Fed’s autonomy. For now, markets have no cause for concern regarding the stability of U.S. monetary policy.

Conclusion

The unpredictability of the Trump administration may usher in a period of structurally higher market volatility. Still, amid the uncertainty, new opportunities are emerging. Our portfolios now have increased exposure to Europe and emerging markets, positioning them well to benefit from the structural changes underway in those regions.

At the same time, U.S. equities remain attractive, thanks to the strength of the domestic economy and its dynamic tech sector. While the dollar has weakened slightly, the institutional stability of U.S. monetary policy—anchored by the Fed—remains intact.

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