The isolation of the US goods economy is causing a stir, but is not sustainable
The US government wants to protect the domestic industry from foreign competition with import tariffs of around 22%. This will lead to higher inflation and weaker economic growth. Because US consumers will oppose the inflationary effect in the medium term, we expect the announcements to be toned down.
Author: Stefano Zoffoli
What happened?
The debate on flat-rate or reciprocal US tariffs has been decided as follows:
- 10% flat-rate tariffs on all imports from 5 April
- Tariffs of 54% on China, 20% on the EU, 24% on Japan, 31% on Switzerland from 9 April
- Mexico and Canada avoid new tariffs for the time being
To put this in context: so far, the effective US tariffs have been around 2.5% in total.
US tariffs as high as they were during the Great Depression of 1933
The stock markets have reacted negatively, but not with panic, to the unexpectedly high tariffs. At the company level, supply bottlenecks, declining sales and shrinking margins are to be feared. Bond prices, on the other hand, have benefited from the expected economic slowdown. Possible stagflation would make monetary easing more difficult.
Change in local ccy. |
EMU Equity | CH Equity | US Equity Futures | EM Equity Futures | USDEUR | CHFUSD | US 10y | GER 10y | Gold |
|---|---|---|---|---|---|---|---|---|---|
Am 3.4. 12:20 |
-2.0% |
-1.9% |
-3.1% |
-1.6% |
-1.6% |
+2.0% |
-7bp |
-6 Bp |
-0.3% |
Seit 1.1.2025 |
+6.1% |
+6.4% |
-12.0% |
+2.4% |
-6.1% |
+5.0% |
-51bp |
+28 bp |
+19% |
How do we assess the situation?
The US trade war is leading to lower economic growth. Our economists expect global GDP growth of 2.5% on the assumption that the announced tariffs will be partially revised. In this main scenario (probability 60%), bilateral agreements will be reached in the medium term and inflation in the US will rise to just over 3% (0.3% effect from tariffs), and in other regions to below 3%. The dampening effect on the global economy supports government bonds, while among equities, domestically focused companies and service providers (such as financials) benefit. In general, we expect a further rotation from growth sectors (such as IT and communication) to value sectors (such as utilities, consumer staples) and away from the US to regions with significant domestic consumption such as emerging markets.
In the negative scenario (10% probability) with a lasting escalation and a slump in US consumption, a recession is no longer avoidable. In the positive scenario (probability 30%), however, quick compromises can be found. In the Portfolioflash of 17 March 2025, we pointed out two factors that are relevant for our market assessment: US consumer sentiment and corporate earnings. The former is currently under pressure (due, among other things, to the stock market losses), but could be supported by tax cuts. So far, corporate earnings have reacted little. In both cases, today's assessment is more negative than it was three weeks ago, but the market has already priced in quite a bit.
How is our tactical asset allocation performing?
Our expectation at the beginning of the year of a rotation from US big tech to other regions has been confirmed. The equity overweight was disadvantageous, but was offset by the resilience of emerging markets, Switzerland and the UK. In bonds, our focus on Australian and British government bonds is now paying off. JPY is overweight, USD is underweight. Alternative investments (gold, insurance-linked) are stabilising the portfolio.
Relative positioning, as of 3 April 2025 (in %)
What adjusments do we consider?
The US government's economic policy has become more erratic and extreme than it was during Trump's first term in office. In our baseline scenario, we expect the announced policy change to be watered down and are sticking to our positioning.
Legal disclaimer Switzerland
Legal disclaimer Switzerland
This document only serves advertising and information purposes, is for distribution in Switzerland only and is not directed at persons in whose nationality or place of residence prohibit access to such information under applicable law. Where not indicated otherwise, the information concerns the collective investment schemes under the law of Luxembourg managed by Swisscanto Asset Management International S.A. (hereinafter "Swisscanto Funds"). The products described are undertakings for collective investment in transferable securities (UCITS) within the meaning of EU Directive 2009/65/EC, which is governed by Luxembourg law and subject to the supervision of the Luxembourg supervisory authority (CSSF). This document does not constitute a solicitation or invitation to subscribe or make an offer to purchase any securities, nor does it form the basis of any contract or obligation of any kind. The sole binding basis for the acquisition of Swisscanto Funds are the respective legal documents (management regulations, sales prospectuses and key information documents (PRIIP KID), as well as financial reports), which can be obtained free of charge at https://products.swisscanto.com as well as at Swisscanto Fondsleitung AG, Bahnhofstrasse 9, CH-8001 Zurich (also acting as representative of the Luxembourg Swisscanto funds in Switzerland) or in all offices of Zürcher Kantonalbank. Paying Agent for the Luxembourg Swisscanto funds in Switzerland is Zürcher Kantonalbank, Bahnhofstrasse 9, CH-8001 Zurich. Information about the sustainability-relevant aspects in accordance with the Regulation (EU) 2019/2088 as well as Swisscanto's strategy for the promotion of sustainability and the pursuit of sustainability goals in the fund investment process are available on the same website. The sub-fund referred to in the document is subject to Article 9 of Regulation (EU) 2019/2088. The distribution of the fund may be suspended at any time. Investors will be informed about the deregistration in due time. The investment involves risks, in particular those of fluctuations in value and earnings. Investments in foreign currencies are subject to exchange rate fluctuations. Past performance is neither an indicator nor a guarantee of future success. The risks are described in the sales prospectus and in the PRIIP KID. The information contained in this document has been compiled with the greatest care. Despite professional procedures, the correctness, completeness and topicality of the information cannot be guaranteed. Any liability for investments based on this document will be rejected. The document does not release the recipient from his or her own judgment. In particular, the recipient is recommended to check the information for compatibility with his or her personal circumstances as well as for legal, tax and other consequences, if necessary, with the help of an advisor. The prospectus and PRIIP KID should be read before making any final investment decision. The products and services described in this document are not available to U.S. persons under the relevant regulations (in particular Regulation S under the U.S. Securities Act of 1933).
Data as at (where not stated otherwise): 11.2024
© Zürcher Kantonalbank. All rights reserved.
