So here we are again – another round of tariffs, and this time it’s Trump’s so-called “Liberation Day” that’s got the markets jittery and UK investors on edge. If you’re wondering what all this noise from across the pond actually means for your money, your pension, or your investments, you’re in the right place. 

The good news? For Questa clients, your diversified portfolio means you are well-placed. Stay calm and don’t make knee-jerk changes. Some sectors could get hit hard, others might just offer rare buying opportunities. Our latest insights from our fund managers show you how they will manage your investments during these volatile times. 

Let’s break it down in plain English.

A Transatlantic Ticking Time Bomb

At the heart of Trump’s tariff plan is this idea of “reciprocity” – essentially, if a country places big import taxes on US goods, he’ll return the favour, and then some.

Sounds fair in theory, but in practice? It’s a messy move that’s already rattling the global economy. The US has set a baseline 10% tariff on most imports, with some countries (including the UK) facing even higher rates in key sectors.

For the UK, it’s a mixed bag. Most exports to the US now face that 10% tax, but industries like steel, aluminium, and cars are getting hit with a stonking 25% tariff. Considering the US is the UK’s single biggest export market, accounting for over 20% of all exports, this is no small headache.

Who’s Feeling the Pinch from the Tariffs?

Let’s talk specifics. UK carmakers are probably sweating the most. With £8.3 billion worth of cars sent to the States last year, a 25% tariff could be a body blow. That’s thousands of jobs on the line.

The pharmaceutical industry isn’t spared either, facing 10% tariffs on billions worth of medicine. Even Scotch whisky, which the Americans love nearly as much as we do, could see its popularity (and price) take a hit.

Now, here’s the thing – these tariffs don’t just magically fall from the sky. Someone has to pay them. And while US importers write the initial cheque, the cost often gets passed straight down the line to consumers. That means UK goods become pricier in the US, and less competitive.

UK exporters then have to make a call: swallow the costs and slash profits, or hike prices and risk losing business. It’s lose-lose.

The Ripple Effect of Tariffs on the Markets

As usual, the stock market took the news badly. The FTSE 100 dropped like a stone, and US markets weren’t looking too pretty either. Investors hate uncertainty, and this has all the markings of a prolonged standoff.

If you’ve got UK shares in your ISA or pension that are tied to big exporters or manufacturers, you might already be seeing some red in your portfolio. The same goes for US investments – American firms dealing with costlier imports and falling demand are also feeling the squeeze.

Pension funds are particularly exposed here. Many have significant holdings in the US, in both equities and bonds. And while some might benefit from a short-term drop in UK bond yields (thanks to investors seeking safer ground), any sign of inflation creeping in due to rising import costs could send interest rates – and yields – the other way.

Currency Swings and Inflation Worries

There’s also the pound to think about. It strengthened slightly against the dollar after the announcement, but that could swing wildly as the dust settles. If things escalate into a full-blown trade war, the pound could go either way depending on how markets think the UK will weather the storm.

And then there’s the inflation question. If tariffs lead to higher costs on imported goods – and there’s a good chance they will – UK consumers could start to feel it. 

That’s bad news for savers, whose money already earns next to nothing in cash accounts. Inflation erodes the value of your savings over time, and this new trade row might just add more fuel to that fire.

Could the UK Hit Back?

Short answer: yes, but it’s treading carefully. The UK government is consulting businesses on whether to impose retaliatory tariffs on US goods – think American jeans, bourbon, and motorcycles. The idea is to hit where it hurts politically in the US, without sparking an all-out trade war.

But even the threat of retaliation adds more uncertainty. Businesses hate unpredictability. It delays investment, messes with supply chains, and generally makes it harder to plan for anything beyond next week.

So What Should Savers and Investors Actually Do?

It’s tempting to panic. But the smart response here is to stay level-headed. Tariff disputes like this often start loud and messy but can fizzle out or shift direction quickly, especially when elections or economic pressures force leaders to dial it back.

Here are a few sensible moves to consider:

1. Maintain and continue with a diversified approach. Questa advocates spreading your risk across different regions and sectors. This advice has not changed.
2. Keep an eye on inflation. If prices rise, consider assets that traditionally cope better, like inflation-linked bonds or commodities.
3. Review your pension exposure. Check how much of your retirement savings are invested in the US, and speak to your provider or advisor if you’re concerned.
4. Stay calm and long-term focused. Market wobbles are nothing new. If your investment goals are 10, 20, or 30 years away, short-term volatility isn’t the enemy.

What Our Main Fund Managers Say about the Tariffs

We’ve summarised the main response from our community of main fund managers below. This is how our fund managers are managing Questa clients’ investments at this time:

1. Monitor Tariff Implementation and Potential Reversals. Given the unpredictability of policy changes, it’s essential to stay updated on any modifications or reversals to the announced tariffs, especially with upcoming political events such as the U.S. mid-term elections.
2. Assess and Diversify Investment Portfolios. Review your investment allocations to ensure they are diversified across various regions and asset classes. This strategy can help mitigate risks associated with market volatility stemming from trade tensions.
3. Evaluate Exposure to Affected Sectors. Identify and assess any direct exposure to sectors or companies that are significantly impacted by the tariffs. Consider adjusting positions to reduce potential losses.
4. Consider Safe-Haven Assets. In times of market uncertainty, allocating resources to traditionally safer assets, such as government bonds, may provide stability. However, be mindful that their returns might not fully offset equity losses.
5. Stay Informed on Global Retaliatory Measures. Be aware of countermeasures from other countries, such as China’s 34% tariff on U.S. goods effective April 10th, and the European Union’s plans for proportional responses. These actions can further influence global markets and economic conditions.
6. Prepare for Potential Economic Slowdown. Recognise that the tariffs could lead to increased prices and reduced consumer spending, potentially slowing economic growth. Adjust business strategies and financial plans accordingly.
7. Look for Buying Opportunities Amidst Market Declines. Significant market corrections may present opportunities to acquire quality assets at lower prices. Conduct thorough analyses to identify potential investments that could benefit in the long term.
8. Engage in Scenario Planning. Develop contingency plans for various scenarios, including prolonged trade disputes or swift resolutions, to ensure readiness for different market conditions.

By proactively addressing these areas, you can better position yourself to manage the challenges and uncertainties arising from the current trade policies and their global repercussions.

A History Lesson Worth Remembering

This isn’t the first time tariffs have thrown a spanner in the works. The infamous Smoot-Hawley Act in the 1930s made the Great Depression even worse by sparking a global tariff war.

More recently, Trump’s first go at tariffs in the late 2010s showed how quickly other countries respond in kind, and how consumers, not foreign governments, often bear the brunt.

The lesson? Tariffs rarely go to plan. They sound tough in speeches, but usually lead to more pain than progress.

If you’re unsure where your money stands in all of this, don’t go it alone. A quick chat with your Questa financial advisor could make all the difference.