Strategy focus - Trade war, a further step reached by Donald Trump

The U.S. president announced substantial and broad based tariff increases on April 2nd. This further tightening could
sharply accentuate the already visible slowdown in the US economy and weigh on its various trading partners. Beyond
the direct economic impact of these measures which remains difficult to assess fully at this stage the announcements confirm that the new US administration’s policies are both significant and unpredictable. Against this backdrop, we are choosing to further reduce our exposure to the US equity market in our allocations, by moving to Underweight. However, while uncertainties remain for other geographies, we remain overexposed to European equities at this stage, which may continue to benefit from favourable support measures. We also maintain a very diversified allocation in terms of assets and geographies and remain attentive to current developments.

The main announcements of the “Liberation Day”
Donald Trump has taken his protectionist policy a step further, announcing on April 2nd the introduction of new broad based tariffs. More specifically, the US government first announced a floor of 10% tariffs on all imported goods, regardless of their geography of origin. Then there was the “add on” differentiated by country according to the size of the trade deficit with the United States. For example, the rate of custom duties would be at least 20% for all goods imported from the European Union, 24% for Japan and 65% for Chinese imports taking all the announcements so far this year together. Existing sector specific taxes could continue (for example, on automobiles, steel, and aluminum). Mexico and Canada do not appear to be concerned by these new measures, having already experienced a significant tightening since the beginning of the year (62% for Canadian goods not compatible with the rules of the USCMA Treaty and 50% for Mexican goods).

Overall, for the US economy, these measures could increase the effective tariff rate from 2.5% in December 2024 to
27.5% in April 2025, reaching a level unseen since 1900.

Uncertainty remains high about what the US and its trading partners will actually put in place. The full implementation of these new tariffs remains uncertain, as Trump has left the door open for bilateral negotiations. Uncertainty also remains high about possible retaliations by the U.S. trading partners. So far, the European Union has made announcements about its willingness to retaliate but has remained vague about the application of these measures. In particular, Mr. Macron announced an increase in tariffs on steel, aluminum and automobiles for mid May before new announcements on other goods in the coming weeks.

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