Another month, another cascade of tariff drama; and once again, it’s dominating the macro landscape to such a degree that everything else feels secondary. Inflation, earnings, even geopolitical tensions are taking a backseat to the chaos emerging from the White House. However, given how much I’ve already covered in the March update, I will keep this more concise, but not because there is less to say. It is just that headlines are now all variations of a single theme: weaponized unpredictability. And I really don’t want to repeat myself.
Let’s briefly retrace how we got here.
It started in January, with Trump wasting no time after the inauguration. Indeed, on January 20th, within hours of taking office, he announced 25% tariffs on imports from Canada and Mexico, framing them as punishment for failing to stop drug and migrant flows. Six days later, on January 26th, he threatened to impose 25% tariffs on Colombia after it refused to accept deported migrants: Colombia pushed back briefly, but folded almost immediately, and so did Trump. By nightfall, the White House declared victory and said tariffs would be “held in reserve”. The market, still in disbelief, treated it as theater. That would soon change.
The first week of February was a masterclass in volatility. On February 1st, Trump formally imposed 25% tariffs on most Canadian and Mexican goods and tacked on 10% for Chinese imports. The reasoning? A grab-bag of fentanyl, immigration, and “unfair trade”. Unsurprisingly, retaliation threats came fast. By February 2nd, facing backlash from business leaders and allies, Trump paused the North American tariffs for 30 days, but shifted his focus to Europe. On February 4th, tariffs against China went into effect, triggering immediate retaliation from Beijing.
From there, the headlines came faster than capital could price them in. On February 7th, Trump floated vague “reciprocal tariffs” on unspecified countries. By February 10th, steel and aluminum tariffs were reactivated. On the 13th, he outlined plans for broad-based tariffs with virtually no exemptions, which is why we were all very concerned about global trade implications. On the 14th, he scheduled tariffs on foreign cars for April 1st, later rescheduled to April 2nd, seemingly to avoid April Fool’s jokes.
After a short lull, the chaos resumed. On February 25th, Commerce Secretary Lutnick launched an investigation into foreign copper imports as a national security threat. Two days later, Trump confirmed that the paused tariffs on Canada, Mexico, and an extra 10% on China would take effect on March 4th.
Then March was the moment the “what if” turned into “what now”. On March 1st, Lutnick launched another investigation, echoing the prior month’s, this time into lumber. Note that Canada is the largest exporter of wood in the United States. By March 4th, the tariffs that had been paused were fully reinstated, hitting the United States largest trade partners: Canada countered with $155 billion in tariffs, triggering a brief de-escalation on March 5th, as Trump paused car-related tariffs under pressure from automakers for cars coming into the United States from Canada or Mexico. By March 6th, many of the tariffs placed on Canadian and Mexican products got suspended with the intention of resuming them later on. Broader reciprocal tariffs remained on track for April.
On March 10th, China escalated: 15% tariffs on U.S. farm goods like corn and chicken, 10% on soy and fruit. Ontario piled on, adding a 25% surcharge on electricity exports to Michigan, Minnesota, and New York. Trump responded with threats to double steel tariffs but then, hours later, both sides backed down. However, the damage was in the signal: policy was now an impulse, an emotional behavior, not a strategy.
Then came the European response. On March 12th, the EU and Canada announced their own retaliatory tariffs, even though the EU explicitly delayed implementation until April 1st in the hopes of negotiation. Trump responded the next day by threatening a 200% tariff on EU alcoholic beverages. Then, on March 24th, Trump announced 25% tariffs on exports from any country that bought oil from Venezuela, directly or indirectly. On March 26th, he said all car and car part imports, even from U.S. brands assembled overseas, would face 25% tariffs.
And then we finally get to April, which opened with what looked like a blanket escalation. On April 2nd, a baseline 10% tariff was imposed on all imports, unless higher rates were already in place: these would be layered with country- and product-specific surcharges, ushering in a de facto global tariff regime. See the Portfolio Update of March.
China answered in kind, and it rapidly became a competition to see who was willing to suffer more. On April 4th, Beijing announced 34% tariffs on U.S. goods and barred eleven American firms from operating domestically. The United States responded with threats of a further 50% tariff, which, if implemented, would push the effective rate on Chinese goods over 100%. Vietnam and Bangladesh began asking for temporary exemptions. On April 9th, the full slate hit: 104% on Chinese goods, 20% on European products, 24% on Japan, and 46% on Vietnam. China, unsurprisingly unhappy, wasted no time and responded twelve hours later with an 84% tariff on all U.S. exports. Then, in a complete reversal that same day, Trump paused most reciprocal tariffs for 90 days, but explicitly excluded China. Instead, he raised Chinese tariffs to 125%.
The April 10th clarification made it even worse: the 125% was in addition to a prior 20% tariff, bringing the total to 145%. Curiously, markets barely blinked. China wasn’t partaking this theater either.
By April 11th, Trump began carving out exceptions, excluding smartphones, routers, and other electronics from reciprocal tariffs: while there were surely good reasons for this decision, everyone thought it was just a gesture to please big tech and their shareholders. Two days later, he waled that back too, declaring the exemptions temporary and threatening new chip tariffs. Finally, on April 29th, Trump altered car tariffs to prevent “stacking” with other levies like steel: not to lower them, but to make the framework seem more coherent.
This year has been a wild ride, and it’s only May.
Although I haven’t had the time to trade actively, the market has been extraordinary for traders: high volatility, sharp intraday swings, and movements driven almost entirely by unpredictable headlines. Fascinating stuff.
The tariff-not-tariff drama has overshadowed nearly every other issue, even ones that should be commanding more attention like inflation, which arguably deserves far more attention. Indeed, there is a serious risk of price pressures re-accelerating due to companies passing the costs to consumers, yet markets are shrugging it off. And that is scary, especially when you consider that from both a macro and a price action standpoint, the current environment looks eerily similar to early 2022: complacency in the face of tightening conditions, opaque policymaking, and latent fragilities building beneath the surface. We all remember how that played out.
However, despite the recent volatility, I expect markets will probably recover much of the drawdown by year-end, but that doesn’t mean we come out of this unscathed. There is a deeper cost accruing beneath the index levels that I extensively talked about last month: credibility. This administration’s erratic handling of trade policy (announcing sweeping tariff frameworks with minimal warning, only to pause them for 90 days without clarity) creates a governance risk that markets cannot easily price. That’s the real damage. It erodes confidence in the United States as a stable policymaking regime and raises the global risk premium for U.S. assets.
And we are already seeing the symptoms.
In relative terms, the United States is starting to lose its halo: European equities, hardly paragons of growth or innovation, are outperforming. And no, that is not because Europe has suddenly fixed its long-term structural issues. It is just because capital is, for the first time in decades, questioning the stability of U.S. policy.
Of course, “never bet against America” still holds, but it’s starting to come with a few footnotes. That optimistic mantra presumes the world continues to rely on U.S. consumption, capital markets, and geopolitical leadership. But if these tariffs go into effect, and particularly in the sweeping zero-negotiation format floated in April, then we could see an acceleration of what I highlighted in the last Portfolio Update: the world diversifying away from U.S. demand, U.S. supply chains, and U.S. exposure altogether. That won’t overnight, but even a credible move in that direction would reshape global capital flows for years.
Surprisingly, for now, markets seem almost cheerful. My portfolio is doing very well, and I’m not complaining, but I can’t help but notice how confidently investors are discounting the probability that tariffs actually will be implemented at the end of the 90-day window. It’s the same mindset we saw when the initial announcement was dismissed as posturing. That complacency might prove expensive. Corporate earnings have held up well so far, but they reflect past conditions more than future threats: if we are heading into a tariff-driven slowdown, or even just a world of elevated uncertainty around trade flows and input costs, then we should be assigning a lower multiple to that earnings stream. Instead, the market is doing the opposite: pricing forward as if clarity and policy stability are imminent. They are not.
Now, the bigger question isn’t whether the market recovers, but rather what kind of recovery this is. If risk assets are rebounding purely due to positioning and headline-chasing, without adjusting for structural deterioration in U.S. policy reliability, then the foundation of that rally is shallow.