A frosty reception

Last week, we witnessed Trump’s self-proclaimed Liberation Day.

Whilst well flagged in the run-up, markets were clearly not prepared for the breadth and scale of the tariffs announced. In the US, the market reaction was distinctly frosty, with the largest 48-hour correction and destruction of value in US history – a paper ‘loss’ of over $6.6 trillion. That figure could grow today, with all the major US indices expected to open lower as markets spiral down and tensions ramp up.

The risk of a tariff-induced global recession is looming large unless remedial action is taken. Financial markets, global governmental leaders and voters will be seeking the Trump administration to review and scale back the planned taxes or confirm trade deals.

In other news, US Vice President JD Vance visited Greenland and given the recent comments on defence and sovereignty, he was unsurprisingly met with a distinctly ‘frosty’ reception. No one in Greenland was prepared to meet with the US delegation, forcing them to cancel all their media events with residents and businesses.

At the same time, in an apparent return to Cold War politics, Putin was in Russia’s Arctic naval base in Murmansk for the launch of the submarine ‘Perm,’ the first equipped with the ‘impossible’ to intercept Zircon hypersonic missiles. Putin has vowed ‘to strengthen Russia’s global leadership in the Arctic.’

Could global warming, something Trump does not believe in or Putin care about, trigger fresh tensions between the three-superpowers, China, the US, and Russia?

Melting ice in the Arctic could open shipping routes and fishing grounds for Russia and China. Greenland is also a key monitoring post for the US to detect missile launches and Chinese/Russian interest in the Arctic may help explain Trump’s fixation with annexing the Danish territory of Greenland, besides rare earth minerals.

Meanwhile, with Europe seemingly frozen out of negotiations, Trump’s hopes of a quick fix to the war in Ukraine and a mineral deal appear to have been given the cold shoulder. Putin is dragging his feet on a deal for peace as his ground forces continue to grind forward in Eastern Ukraine.

Trump’s hopes of winning a Nobel Peace prize appear to be melting faster than an Arctic iceberg, especially now that he has fired the starting gun on a potential global trade war.                    

 

What have we been watching?

 

Trump’s Liberation Day bloodbath has seen over $6.6 trillion wiped off the value of global equities so far. Wall Street fell by almost 6% on Friday and futures are suggesting another big fall later today. Asian markets are currently down heavily this morning and the UK market has opened down over 4%!

Trump’s Liberation Day tariffs are a long-time personal goal fulfilled and his biggest gamble to date! Trump has kicked the door in and chucked a stun grenade into the global trade business model which has developed over the last thirty years. Markets hate uncertainty and it is still not clear whether reciprocal tariffs are the starting point for negotiation and will be maintained at these levels. Trump has already claimed sixty countries have been in touch with the US to negotiate trade deals. Will the size of US equity losses force Trump to rethink his tariff policy? For now, Trump looks as if he wants to play hardball. The risk is that if Trump holds firm and more countries retaliate, that recession and stagflation fears will gain momentum. Leading US investment bank JP Morgan has already raised the chances of a US recession from 40% to 60%. Markets were also spooked on Friday as China immediately countered with a 34% tariff on US imports. 

---

 

The Trump administration had flagged the ‘dirty fifteen’ countries with the largest trade imbalances ahead of Liberation Day, including the likes of China, Japan, and the EU. However, Liberation Day saw 180 countries hit and markets were surprised by the scale of tariffs imposed on countries in Southeast Asia. While China was hit with a 34% tariff and Japan with 24%, the tariffs on their smaller neighbours were eye-watering. This included Taiwan (32%), Vietnam (46%), South Korea (25%), Thailand (36%) and Indonesia (32%). Elsewhere, the EU tariff was 20% and Switzerland was 31%.  Tariffs for Canada and Mexico remain at 25%. Amongst the countries in the lowest 10% tariff band were the UK, Australia, and Turkey. There were no new sector tariffs announced, but the 25% car tariff will come into force. The White House shared the simple formula it used to calculate Liberation Day tariffs, which basically was based on the trade deficit for the US in goods with a particular country divided by the total goods imported from that country, which was then divided by two. For example, for China, the US trade deficit was $295bn while the total amount of Chinese goods purchased was $440bn. Dividing $295bn by $440bn gives 67% and that was divided by two and rounded up to give a tariff of 34%!

---

 

Unpacking the details of the tariffs will take time. The net result, however, is a broad and comprehensive reset to global trade conditions. Luxury goods and brand owners that have manufactured US consumer goods in cheaper labour markets in Asia for years will now have to reassess their business models. The main losers from tariffs are those suppliers that are part of global manufacturing supply chains serving the US, which must now either re-shore to the US, take the tariff hit or hope to pass this onto customers. How do companies plan when it is unclear whether the current tariffs will remain or be renegotiated! Trump wants companies to reshore manufacturing to the US, but this will take quite a few years to achieve.

---

 

Rather than drawing a line in the sand, the Liberation Day tariffs create more uncertainty, which markets hate. It will take a few weeks for the dust to settle. Besides China, will some of the major countries targeted counter with retaliatory tariffs? Will some countries be able to negotiate lower tariffs or a trade deal? The tariffs will initially be inflationary for the US economy and will slow economic growth. How will central banks, particularly the US Federal Reserve (Fed), react? Would the Fed cut interest rates to offset economic slowdown? Trump is pushing the Fed to cut interest rates, but the Fed wants to gauge the inflationary impact of tariffs before acting. Will larger economies such as China announce more stimulus measures to counter tariffs? Furthermore, Trump is unpredictable! Will he flip-flop on the scale of tariffs depending on responses? Will he go harder or introduce further sector tariffs such as on pharmaceuticals?

---

Geopolitical tensions also continue to overhang the global economy. Benjamin Netanyahu said Israel is ‘seizing territory’ and intends to ‘divide up’ the Gaza Strip by building a new security corridor amid a major expansion of aerial and ground operations against Hamas. Trump must also deal with Putin dragging his feet over a potential ceasefire in Ukraine. Will Trump impose punitive 50% tariffs on any country buying Russian oil, gas and uranium to force Putin’s hand?

---

 

Brent oil initially moved higher following Trump’s threat to bomb Iran unless a deal is reached on its nuclear programme. However, it dropped over 10% to $63 on Trump’s tariffs, and this morning Saudi Arabia cut the price of its flagship crude oil by 2.5%.   

---

Finally, it appears nowhere on Earth is exempt from Trump’s Liberation Day tariffs. Australia has been slapped in the 10% tariff band, but this includes uninhabited Aussie territory, including the barren Antarctic Islands, one of the remotest places on Earth! Just why Trump has targeted the islands population of penguins, seals and flying birds is a mystery. The law of unintended consequences or forerunner of a US minerals land grab?

---

Read Last Week’s Alpha Bites – Once a jewel in the crown, is AIM now losing its shine?

Further information about Alpha Portfolio Management, our products and services, please visit www.alpha-pm.co.uk or email info@alpha-pm.co.uk. Alternatively, you can call us on 0117 203 3460.

This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.

You should seek professional advice before making any investment decisions. The past is not necessarily a guide to future performance. The value of shares and the income from them can fall as well as rise and investors may get back less than they originally invested. The sender does not accept legal responsibility for any errors or omissions, in the context of this message, which arise as a result of internet transmission or as a result of changes made to this document after it was sent.

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the FCA.
Registered Office: 1 The Square, Temple Quay, Bristol, BS1 6DG. Registered in England No. 2489639
Copyright © 2025 Alpha Portfolio Management, All rights reserved

Trading name text

Alpha Portfolio Management is a trading name of R C Brown Investment Management PLC which is authorised and regulated by the Financial Conduct Authority.