US tariffs explained - plus three funds to consider

The detail of new tariffs announced by US President Donald Trump has caused ripples in global markets. Here, we cover what has happened to help investors make a considered response.

Before we dive in, we would always caution against knee-jerk reactions. Selling when markets are falling often leads to regret. Equally, sell-offs can often later be seen as opportunities to buy. 

You may also want to read a broader view from Fidelity investment director Tom Stevenson: Trump's Trade War: the case for diversification.

• Read: Tariff impact: how to invest during stagflation
• Read: Investing in cash in a Stocks and Shares ISA: the basics

What has President Trump announced?

The tariffs include a baseline 10% duty on imports to the US and higher rates for specific countries. For example, the European Union faces a 20% tariff, while Japan and South Korea face 24% and 25%, respectively. China faces a new 34% tariff. The UK, in contrast, will only face the 10% flat rate. Certain industries face higher tariffs, such as a 25% rate on cars and auto parts imported to the US. Canada and Mexico already pay a 10% tariff and face nothing in addition. The news rippled through markets on Thursday and China’s response, with its own tariff of 34%, caused another sell-off on Friday.  

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How have markets reacted?

Here is some detail on the market impact.

• Asian markets: stock markets across Asia experienced sharp declines over two days. Japan's Nikkei 225 registered a drop over the week, while South Korea's Kospi and Hong Kong's Hang Seng also saw notable losses.
• European markets: the FTSE 100 was the least affected of the major markets down 1.8% on Thursday compared to 3.2% for Germany's DAX and 3.5% for the French CAC. But prices fell again on Friday with the FTSE 100 down nearly 4% by mid session. 
• Currencies: the dollar slumped versus both the euro and the Japanese yen, as well as a range of other currencies. The pound leapt to $1.32 on Thursday, having been at $1.29 on Wednesday morning. It settled back to $1.30 on Friday morning.
• Interest rates: markets see a greater likelihood of rate cuts. They now price in a 50/50 chance of the Bank of England making three reductions, or 0.75 of a percentage point, this year.
• Sectors: carmakers have been hit hard as well as financial services stocks. Clothes makers and luxury goods stocks, exposed to harsher tariffs on Asian countries like Vietnam and Thailand, have also sold off. Defence stocks and pharmaceuticals have fared better.

The new tariffs are likely to hold back global economic growth by increasing costs for both businesses and consumers - economists often say tariffs are a type of tax. Specifically, it increases the chances of stagflation - low economic growth with high inflation.

Any ensuing trade war also increases the chance of a recession. Goldman Sachs at the weekend estimated a 35% chance of a US recession this year. 

Markets expect the S&P 500, the index of America’s biggest companies, to open at least 3% lower today (Friday). More broadly, it has fallen by 8.2% in 2025. The Nasdaq index of technology stocks is down 14.3% this year. 

The US market is now lower than where it sat before the ‘Trump bump’ in November, when President Trump’s election victory propelled US markets forward.

In contrast, the UK’s FTSE 100 is 3.7% ahead in 2025 and Europe, which has begun to politically coalesce, is up 3.5% (figures to last night's close). 

• Read: How I've coped with 40 years of market setbacks

It’s worth noting, however, that major stock markets remain substantially higher than a year ago, as shown in the table below. 

Changes in European and US markets 

Past performance is not a reliable indicator of future returns

Source: LSEG Datastream, 3.4.25, European index is Stoxx Europe 600. P/e is based on forecast earnings, according to Goldman Sachs research (1.4.25). 

Is this making markets better value? 

It is worth noting that the US market has been on a high valuation for several years with technology stocks – led by the ‘Magnificent 7’ – leading a powerful rally.

The US market at the start of the week was trading on a price-to-earnings ratio, a measure of value, of 21 compared to cheaper markets in the UK, on 11 and Europe, on 13. This high valuation left the US more vulnerable to falls. The UK is cheap on a number of measures, including its dividend income yield. The iShares Core FTSE 100 ETF, from our Select 50, indicates a yield of 3.52%. 

What about bond markets? 

Bonds, which are effectively IOUs from companies and governments that pay investors fixed income payments, can provide diversification from stock markets, rising when share prices fall. This has held true amid this week's tariff shares sell-off.

Bond prices rose on Thursday morning. It may seem surprising that investors are buying US government bonds on a day when American economic policy was being criticised so widely, but markets have traditionally seen US treasuries, and other Western governments’ bonds, as a safe haven in times of market turmoil.

It’s also important to note that the indicative income yield on a bond falls when its price rises. 

America’s cost of borrowing, as measured by the yield on its 10-year government bonds or ‘treasuries’, is now below 4%. It was 4.5% as recently as 18 February, the day before the peak in the S&P 500 stock market index.
 

What about currency markets? 

Currencies are a proxy for economic strength. As fears have grown for the US economy and for future American economic policy, the dollar has sunk.  

The pound has strengthened from a low of $1.22 in January to $1.30. The euro’s rise has been even sharper, up from €1.03 to €1.11.  

What about emerging markets?

The true impact is still being assessed but certain emerging markets and frontier markets face particularly high tariffs. It is worth checking your exposure with our X-ray tool - more explained here. 

•    China: 54% (which includes earlier tariffs)

•    India: 27% 

•    Vietnam: 46%

•    Thailand: 36%

•    Cambodia: 49%

•    South Africa: 30%

•    Taiwan: 32%

What investments gain appeal in periods of stagflation?

During stagflation, traditional investments like stocks and bonds often underperform due to slow economic growth and high inflation.

However, certain assets may gain in appeal. 

1. Commodities: rising inflation will, of course, push raw material costs, so commodities, such as copper and oil, should rise. However, a weak economy can undermine this. 
2. Gold and silver: gold is often seen as a safe-haven asset, with the price rising during economic uncertainty, as has been the case for the last year. A period of low real interest rates also reduces the 'opportunity cost' - the returns from investing elsewhere - of owning an asset that pays no income, such as gold.
3. Defensive stocks: companies in sectors like utilities, healthcare, and consumer staples often remain stable during economic downturns.
4. Real estate: real estate can provide steady income and act as a buffer against inflation through rent increases.
5. Value stocks: these stocks are typically undervalued and can offer resilience during economic uncertainty. Growth stocks - those bought on the promise of future success, such as tech stocks - tend to suffer.

The increase in demand for these assets often happens before stagflation arrives. The gold price, for instance, recently surged through $3,000 an ounce while growth stocks have faltered in late 2024 and so far in 2025.

A study by Schroders, an asset manager, set out what happened during periods of stagflation between 1973 and 2001, looking at average annual returns with inflation taken into account. The top performers were gold (+22.1%), commodities (+15.0%) and real estate investment trusts (REITs) (+6.5%). US equities tended to struggle (-1.5%) and US government bonds were a mixed bag (+0.6%).

• Read: Gold price: the latest analysis and our fund picks

How long-term investors use volatile markets 

Before reacting, look over our investment principles. They can help you tune out of short-term noise and stay focused on long-term goals. 

But market falls do provide a chance to think about whether your portfolio is performing as it should. Remind yourself of the purpose of your portfolio and your own comfort level with risk:  

• What are your time horizons? The stock market has tended to achieve better returns than bonds and risk-free cash over long timeframes (10 years-plus), although there is no guarantee of a repeat. And remember that losses are only realised when you sell. 
• How do you feel when markets fall? This can change over time so use market wobbles to examine how well you cope with them. Even if you have long savings time horizons, you need to be able to sleep at night. Make sure you hold investments that match your risk appetite. 
• Is this a buying opportunity? Seasoned investors often see market falls as a reason to invest more, not less, and may even decide now is the time to put any cash they have on the sidelines to work while market levels are suppressed. It is worth considering the valuation of markets, as per the table above. Our Select 50 offers some favoured funds. Use the ‘Investment Association Sectors’ dropdown to narrow the geographies. Search the Select 50 here.  
• Will you miss a tax-efficient opportunity? The allowance we get to invest tax-free inside an ISA is limited – you use it or lose it each year. Even if you are put off investing money into the stock market right now, be sure to make the maximum use of your £20,000 ISA allowance for 2024/25 before the window closes on 5 April. You can contribute to your Stocks & Shares ISA without committing to investing the money right away. Money not invested is held in Fidelity’s Cash Management Account where interest is currently paid at 2.99% (AER) a year.  

Three Select 50 funds to consider 

Given that stock markets have traditionally been a good place for your money over very long periods of time, we have focused on two with a value tilt and one that is designed for difficult markets.

The Pyrford Global Total Return Fund is designed to minimise the impact of rocky markets. It aims for low volatility and to try to minimise falls. Unlike most of the funds on our list, it invests in a range of asset types, combining investments in shares, bonds and cash. The allocation to stock markets is usually below 50% and is currently just 30%. Most of the money is in bonds. It has very low exposure to the US – less than 4%. 

• More on Pyrford Global Total Return Fund 

The Dodge & Cox Worldwide Global Stock Fund is well diversified across world stock markets. A little over 50% of the fund is invested in the US when most global index tracking funds would allocate nearly 70%. It also invests in Europe, the UK, Japan and Australasia, but will allocate smaller amounts to emerging markets, like parts of Asia, Latin America and Africa. The managers are ‘value’ investors, quite contrarian and often buying companies with depressed share prices. 

• More on Dodge & Cox Worldwide Global Stock Fund

Fidelity Global Dividend Fund is run by Dan Roberts, a meticulous investor with long stock market investing experience. He has an extensive pool of company researchers who can help guide his investments. His focus can, therefore, be on selecting the best ideas that the analysts provide. The fund is regarded as one of the riskier allocations within a diversified portfolio. It has relatively low US exposure, at 29.7%. Nearly 50% is invested in Europe and 16.2% is in the UK.

• More on Fidelity Global Dividend Fund 

Past performance is not a reliable indicator of future returns 

Source: Refinitiv, total returns from 31.3.20 to 31.3.25. Excludes initial charge. 

Important information - The value of investments and the income from them can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. The three funds mentioned invest in overseas markets so the value of investments could be affected by changes in currency exchange rates. The Dodge & Cox Worldwide Global Stock Fund invests in emerging markets which can be more volatile than other more developed markets. The Dodge & Cox Worldwide Global Stock Fund and Fidelity Global Dividend Fund use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The Fidelity Global Dividend Fund invests in a relatively small number of companies so may carry more risk than funds that are more diversified. Dodge & Cox Worldwide Global Stock Fund, has or is likely to have, high volatility owing to its portfolio composition or the portfolio management techniques. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. The Key Investor Information Document (KIID) / Key Information Document (KID) is available in English and can be obtained from our website at www.fidelity.co.uk. Please note that Tom’s picks and Select 50 are not a personal recommendation for you. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.