Things change as much as they stay the same

On April 9, U.S. President Trump announced a 90-day pause in the implementation of reciprocal tariffs. All markets now face a 10% baseline tariff. China is the exception, with tariffs on its goods raised to 145% after its imposition of 84% tariffs in response to U.S. measures.

The tariffs on steel, aluminum, autos, and auto parts remain unchanged at 25%. Tariffs on Canada and Mexico also remain (25% on non-USMCA goods, 10% on potash and Canadian energy). U.S. President Trump indicated that further sector level duties (e.g. pharmaceuticals) are under consideration but select U.S. companies may be exempted.

Risk assets saw an increase after the announcement. The S&P 500 and Nasdaq rose 9.5% and 12%, respectively, marking their best days since 2008 and 2001. This positive sentiment extended to Asian markets, with Taiwan (9.3%), Japan (7.7%), and Korea (6.0%) showing notable performance. However, U.S. markets experienced a pullback on April 10 due to ongoing policy uncertainty.

Even with the reciprocal tariffs on hold, the U.S. effective tariff rate remains elevated. At 25.2%, it is around 10 times the 2.4% level prior to U.S. President Trump’s inauguration and the highest in over a century. Consequently, the economic implications may influence global growth and inflation, although the effects will vary depending on the final tariff rates.

The extension of the tariff deadline does not significantly reduce uncertainty for investors, consumers, or businesses. However, it may indicate that the White House is more attuned to market fluctuations than previously perceived.

U.S.-China trade: Tit-for-tat

The pause on reciprocal tariffs globally means that China is more affected under the current structure. China and the U.S. have a significant level of economic interdependence. A sustained 145% U.S. tariff on Chinese goods and the 84% tariff applied by China puts the USD 582.4billion bilateral trade between the two economies at risk. It remains to be seen whether the transshipment of goods to the U.S. via other Asian markets will continue. This may be addressed in market-level negotiations with the U.S.—as it did after the 2018-2019 trade tensions. In any case, the large contribution to U.S. tariff revenue from China (Exhibit 1) is likely to decrease as demand for Chinese imports falls and is partially or fully replaced by imports from economies with lower tariffs.

Can the U.S. manage without Chinese imports? Currently, 13% of U.S. imports come from China, with mechanical, electrical, and technology products comprising nearly 50% of those imports, followed by oil products, agricultural products, metals, and ores. Meanwhile, China supplies over 70% of U.S. imports for products like lithium-ion batteries, smartphones, and computer monitors. Some goods are not easily substitutable from other sources or alternatives, especially lithium-ion batteries and critical minerals.¹

Can China’s growth momentum be sustained without U.S. demand? Between 2018 and 2025, the U.S. share of Chinese exports has fallen from 19.2% to 14.8%, as China diversified its export markets in response to previous trade tensions with the U.S. It is estimated that a 60% tariff rate on China would reduce China’s gross domestic product (GDP) by 2 percentage points in the next 3-5 quarters, due to a direct reduction in exports as well as weaker investment and consumption, and various spillovers from reduced business confidence.²  The economic impact has increased with the magnitude of the tariffs; however, it is likely to be mitigated by further monetary and fiscal policy stimulus.

To date, efforts have been directed towards managing market volatility. China’s state-backed funds have pledged market support, and the People's Bank of China (PBOC) has assured markets that they will provide funding through re-lending programs to sovereign funds.

Further fiscal support is expected but may come with more tariff clarity. The April Politburo meeting presents an opportunity for further announcements. The government can also use existing tools such as the accelerated deployment of planned government bond issuance, to fund investment. Alongside ongoing efforts to boost domestic consumption, the government may choose to utilize previously effective channels, such as infrastructure investment, to accelerate economic stimulus.

How will regional markets respond? The Asian region, excluding Japan, was already facing economic headwinds and central banks across the region were easing policy to stimulate growth. While the 90-day pause on reciprocal tariffs offers some relief to markets, it does little to alleviate the uncertain business environment faced by companies across the region, as the second-order impacts of the China–U.S. trade tensions weigh on the regional outlook. What is more certain is that growth rates across the region are likely to slow along with trade flows.

Are things cheap enough? Equity multiples at the regional level were not as elevated as in developed markets but have adjusted in line with global indices. The MSCI Asia ex-Japan Index has fallen from 13.5x to 12.1x since the beginning of the year, marginally below the long run average. The potential for further de-rating stems from further earnings downgrades. This is in turn linked to a rather complex set of factors; the strength of U.S. demand, the nature and magnitude of China’s response, the possibility of additional sector-level tariffs by the U.S., and the outcomes of market-level negotiations.

Consensus estimates for 2025 earnings per share growth for the Asian market was 11.8%, and so far, this has only declined modestly to 9.2%. However, as is the case for developed markets like the U.S., valuations may not fall to the levels associated with prior recessions if this becomes the dominant outlook. Lower yields across the region imply lower discount rates applied to future earnings, and the shift in the sector composition of the index towards higher value sectors may result in a higher overall valuation.

Will a weaker USD help? Historically, a weaker U.S. dollar has been supportive for emerging market assets. The depreciation of the U.S. dollar in recent weeks is notable as it has not benefited from the traditional safe-haven status. The expectations for differing fiscal policy outcomes between Europe and the U.S., as well as the diminishing theme of U.S. exceptionalism have likely contributed to the downward dollar pressure, affecting the “dollar smile.” This has resulted in developed market currencies performing better against the U.S. dollar, while Asian currencies remain relatively weak due to global growth risks impacting Asia more significantly and limited fiscal support outside of China.

Investment implications

The potential for a policy pivot, whether trade, fiscal, or monetary, has always posed a risk to significant changes in market conditions. The 90-day pause on reciprocal tariffs does not represent a complete shift in trade policy, nor does it relieve the uncertainty facing the market regarding the long-term strategy of the U.S. Meanwhile, the escalation of tariffs between the U.S. and China introduces new risks for the Asian region given the second order effects on global and regional growth.

In this environment, a well-diversified portfolio across assets and regional equities remains a preferred investment strategy. An active approach to global equities may be beneficial as the full impact of tariffs on corporate earnings is assessed and as more clarity emerges regarding the potential monetary and fiscal responses from affected markets.

Within equities, income is a defensive strategy and higher income strategies may help shield against the potential for further de-rating in equity markets.

However, given the twin shocks of potentially higher inflation and weaker growth, investors should ensure that allocations across both equities and fixed income are appropriate.

Core bonds help to hedge the risk of a growth shock, and we expect yields may decrease should a recession become more likely. Bond investors might consider adding duration globally, given the volatility in the U.S. market.

Exploring beyond traditional markets for portfolio diversification could also be beneficial given the risk around inflation. Alternatives, such as real assets, can provide steady income with low correlation to public markets as well as offering inflation hedging characteristics. 

¹Former U.S. President Biden introduced a 25% tariff on lithium-ion EV battery imports from China starting in January 2026. Critical mineral exports from China to the U.S. have already been heavily restricted.
²Estimate from J.P. Morgan Securities. 

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