Six months on: the real impact of Trump’s trade war

Stock markets appear to have forgotten ‘Liberation Day’ surprisingly quickly. It is six months since Donald Trump launched his tariff programme on the world. Since then, governments have been frantically negotiating to try and keep the impact to a minimum, with varying degrees of success. How close is a full picture on the final shape of US tariffs and their impact?

A clearer outlook on tariffs

The outlook is certainly clearer than it was in April. For example, it is clear that tariffs are at the higher end of expectations. The Budget Lab at Yale University says that the overall tariff rate is running at 17.4%. This is the highest rate since 1935*. It is also clear that certain countries are in the firing line. Of the existing tariffs, Canada (35%), Brazil (50%), Switzerland (39%), and India (50%) are the hardest hit**. The UK and even Europe have escaped relatively unscathed, with tariffs of 10% and 15% respectively. 

China still has a 54% tariff threatened, but this has been consistently kicked down the road and it is starting to look as if each side may have recognised their interdependence. Edmund Harriss, manager of the Guinness Asian Equity Income fund, says “We observe from the initial tariff salvos that both the US and China can do significant harm to one another. Each holds negotiating cards that reflect both their scale and access to specialised products or commodities that the other needs.”

It is also clear that certain industries are more affected than others. Donald Trump is focused on goods rather than services, and this has been where he has concentrated his attention, hitting autos, pharmaceuticals, agriculture, metals and machinery the hardest.  

Trade relationships matter more than tariff levels

However, beyond that, clarity is still elusive and markets are still working out what is important. For many countries, it is not necessarily the level of tariff that matters most, but their trading relationship with the US. 

Charles de Quinsonas, manager on the M&G Emerging Markets Bond fund, says: “Brazil and India have the highest tariffs, at 50%, but the economic impact of that level of tariffs is not as much as the political noise would suggest. In India, for example, the 50% tariffs were announced in early August. Two weeks later, S&P upgraded India’s credit rating, pointing out that India is a very closed economy and exports are not the main driver of growth.” He says that this has been an opportunity as those countries have been unfairly punished by bond markets. In contrast, countries such as Taiwan or Vietnam have tariffs at 20%, but the impact may be larger. 

Harriss adds: “The impact of existing tariffs hurts some but by no means all businesses in China. We can see that in less specialised manufactured goods, conditions for Chinese companies exporting to the US have deteriorated, and businesses here are suffering. But over the long term, we can see new industries, such as renewable energy equipment, EVs, batteries, industrial automation, semiconductors, cloud computing, advanced manufacturing, reach a scale that can provide growth. Chinese exports to the US are slowing but are more than offset by growth to the EU, Southeast Asia and Latin America. Chinese trade is growing; not to the US, but still growing overall.”

Uncertainty for companies

The impact on individual companies is also not clear. Until recently, the level of tariffs was unknown, and certain sectors are still facing uncertainty. Donald Trump has only just announced the level of pharmaceutical tariffs (100% from 1 October), for example, which has made it difficult for companies to set pricing levels. Equally, implementation has been capricious, with tariffs often imposed and then withdrawn, often once a separate and potentially unrelated criteria has been fulfilled. This means in many cases companies have not had sufficient information to make pricing decisions.   

At the start of July, economists at Goldman Sachs Research estimated that companies would pass on 70% of the direct cost of tariffs to consumers through higher prices***. However, the group says that some recent business surveys have indicated lower pass-through of tariff costs to consumers and the recent earnings season offered conflicting messages on the margin outlook. 

Ariel Bezalel, manager on Jupiter Strategic Bond, says it is still too soon to make a judgement: “The potential pass-through from tariffs has yet to be fully assessed and could push consumer prices higher. The post-Covid surge in prices showed that the risk of second-order effects can’t be ignored even if any price increase is considered a one-off adjustment, which has created an uncertain outlook for inflation.”

Market reactions and the dollar

Eva Sun-Wai, manager of the M&G Global Macro Bond fund, says the political noise around those tariffs doesn’t necessarily translate to what has been seen in markets, suggesting that investors are still deciding what to think about it. The main impact so far has been felt in the US dollar, but this may broaden out. 

She says that in the more closed economy that Trump is trying to create, investors might expect more inflationary pressures, therefore potentially higher US rates, and potentially a higher dollar – assuming that currencies follow rate differentials. “In our view, the lack of dollar follow-through means a couple of things: markets do understand that political noise is louder than the effect on the underlying economy so far. There have been a lot of U-turns after initial announcements. Also, investors are aware that any re-routing of production, onshoring, doesn’t happen immediately. The impact will take more time to show up in markets.” She believes that inflation expectations look complacent, given the potential for pressures to emerge further down the line. 

Another uncertainty is whether the tariffs will persist at all. Yale’s Budget Lab points out that tariffs implemented through IEEPA (International Emergency Economic Powers Act) are a significant proportion of the overall tariffs. That has been declared illegal. An appeal is going through the courts. If the IEEPA tariffs were confirmed as illegal and not replaced by other trade authorities, it would erase 71% of the tariffs*.  

Are markets too complacent?

Six months in, there is still considerable uncertainty surrounding tariffs, which is why it is perhaps surprising that markets appear to consider them largely irrelevant. Equity markets continue to hit new highs, while credit spreads remain at all time lows over government bonds. This is a sign that markets may be too complacent about the risks. 

*Source: the budget lab, 4 September 2025

**Source: Atlantic Council, Trump tariff tracker

***Source: Goldman Sachs, 3 July 2025