Navigating Through Global Market Turbulence

On April 9, 2025, prior to the 90-day tariff pause, capital markets strategist Tim Murray led a panel discussion on the tariff turmoil and recent market events with four T. Rowe Price investment experts: Sébastien Page, Head of Global Multi-Asset and CIO; Justin Thomson, Head of the Investment Institute and CIO; Blerina Uruçi, Chief U.S. Economist; and Gil Fortgang, Associate Analyst, U.S. Equity. Below is a summary of that conversation.

A pause on tariff turmoil

The tariffs announced by the Trump administration on April 2, 2025 were the highest trade barriers in more than a century and reminiscent of historical precedents like the McKinley Tariff Act, Smoot-Hawley Tariff Act, and policies from the Nixon administration. The motivations behind these tariffs are complex and multifaceted, with President Trump's longstanding preference for tariffs playing a significant role. Gil Fortgang emphasized that while “negotiations of some sort are inevitable,”—and just hours after the panel discussion, the administration paused higher tariffs on most countries for 90 days—the outcome remains uncertain, contributing to market unpredictability. The administration's current thematic policy goals include promoting domestic investment, restructuring domestic manufacturing, and altering the global trading system. However, these goals are subject to change with evolving political dynamics, making it a complex issue without straightforward solutions.

“There will be negotiations. And it will change. We just don't know to what degree, and in what ways. So that kind of creates this extant uncertainty just lying over the market.”
- Gil Fortgang, Associate Analyst, U.S. Equity

Global reactions vary

The current market environment presents a pivotal moment: shifts in U.S. economic policy have global impact, given the nation’s status as the world’s largest economy. Even regions initially spared will eventually feel the impact.

Countries like Canada have reacted with umbrage, while the United Kingdom and Mexico have adopted charm offensives. Japan and South Korea are open to negotiations, as is Europe. However, the focus remains on China, and the ongoing tension here complicates the situation for asset markets.

Justin Thomson, Head of the Investment Institute, suggested Japan for potential to recovery due to its currency and position in negotiations. Structural shifts in the global economy could impact long-term capital flows, suggesting a possible end to U.S. exceptionalism.

"Are there any places that are havens? Well, let's think about what happens next. Japan has been quite heavily sold off, and the 30-year Japanese Government Bonds has been sold off as well. I think that looks interesting."
- Justin Thomson, Head of the Investment Institute and CIO

U.S. economic implications

The recurring question of a potential U.S. recession has been a frequent topic over the past three years, with market probabilities often spiking above 50%. However, the current concern is heightened compared to previous years, as the cushion for consumers and corporations, in terms of excess savings and profit margins, has diminished. Prior to the pause, the increase in U.S. tariffs from 2.5% in 2024 to 23% in 2025 represented a significant shock, potentially impacting real consumer spending and inflation.

“I do think that the probability of stagflation is maybe higher than that of a recession at this point...to have those two [inflation] shocks [2022, 2023] so quickly and after each other, I think it increases the probability of stagflation.”
- Blerina Uruçi, Chief U.S. Economist

The persistence of inflation depends on consumer and business inflation expectations, as past inflation shocks have shown that they can lead to entrenched price-setting behaviors, making it difficult to eliminate them from year-on-year calculations. The rapid succession of these shocks increases the probability of stagflation. Additionally, immigration plays a crucial role in labor supply, with a significant influx of three to five million workers since COVID-19. This has helped alleviate tight labor markets, particularly in sectors like healthcare and education. However, curbing immigration could lead to tighter labor markets and sustained inflationary pressures. The policy mix, including supply shocks from tariffs and potential fiscal boosts, could further exacerbate the supply-demand mismatch and increases the likelihood of stagflation.

Markets on the edge

The recent market volatility is significant, with U.S. markets experiencing a 10.5% drop, a rare occurrence since World War II. Historically, the Asset Allocation Committee has taken advantage of such market volatility by buying the dip. However, the current situation is different, and Sébastien Page explained the Committee is adopting a more cautious approach, even considering trimming credit positions due to insufficient reaction in credit spreads. The committee is cautious in the short run, focusing on long-term value and non-U.S. stocks. 

“Stay invested, stay diversified.”
- Sébastien Page, CFA®, Head of Global Multi-Asset and CIO

Looking ahead

The bottom line is higher tariffs pose a significant risk to the economic outlook, even if ultimately temporary. While an uncertain market environment is challenging, it also presents opportunities for skilled active investors. We believe that consistently pursuing investment results requires a long- term perspective. It’s important for investors to stay focused on  longterm goals, be diversified, and maintain a disciplined approach despite these fluctuations.