Client Update - 1st August 2025

Having outmanoeuvred EU representatives, President Trump and his team have struck a further “deal” – this time with Europe, to bring the overall global tariff rate towards an average of 15% on goods – from circa 3% last year. China remains in full negotiation mode and this outcome is eagerly awaited.

The maths on the impact of Trump’s new tariff’s is impressive. The US imported $3.3tn in goods last year. Tax that at 15% and that gives you just under $500bn in revenue.

The questions are what the impact on spending, savings and investment will be, and how these impacts will show up in corporate profitability and the US fiscal outlook. Our investment team are closely watching certain sectors, such as the auto and clothing sector that are particularly dependent on imported goods and would bear the brunt of tariffs. This could lead to lower employment in these sectors and higher prices leading to inflationary pressures and lower consumer spending. Over time, tariffs induce corruption and diminish competition. This will slow productivity growth in the US economy. Even though the EU, Japan, UK and others conceded to the Trump demands for a quick deal, and can probably live with 15% across the board tariffs, they will change their behaviour to de-emphasise the US as a trading and investment partner. Watch out for China pulling up in the rear-view mirror.

Data this week showed that the US economy grew at an annualised rate of 3% in the second quarter of 2025, rebounding from a contraction three months earlier. The second-quarter figure beat Wall Street expectations for GDP to expand at 2.6%, and contrasted with a 0.5% contraction in the first quarter. Overall, the average rate of growth was about 1.3% in the first half of the year, marking a significant slowdown from 2.8% in the final six months of 2024.  The US Federal Reserve were equally unimpressed, holding interest rates steady this week as they cited many unknowns in the labour market and economy due to the tariff negotiations and the impact on stubborn inflation.

Will the market continue to take a relatively sanguine view on tariffs and geo-politics as it waits for easing of financial conditions and more meaningful interest rate cuts? Time will tell. It remains best to stay invested in a well-constructed investment portfolio with an eye on current market conditions. With regards to trying to time any market corrections and reinvest from cash – I will leave you with this Peter Lynch quote - “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” Do have a good weekend.