asset allocation | april 3, 2025
Global Asset Allocation Viewpoints: Shock and Awe
Investors are reeling from the worse-than-expected level of tariffs announced on Wednesday, further exacerbating already high levels of uncertainty.
Key Insights
Tariff hikes on "Liberation Day" could push the U.S. toward recession, raising inflation risks and impacting consumer sentiment.
T. Rowe Price is reducing U.S. equity exposure due to trade policy uncertainty, seeking opportunities in global markets.
Investors face heightened volatility; long-term impacts on global order remain a concern amid ongoing trade tensions.
Investors are reeling from the worse-than-expected level of tariffs announced on Wednesday, further exacerbating already high levels of uncertainty. Either triggering negotiations or retaliations, a quick fix seems unlikely. While near-term global growth expectations worsen, the longer-term impacts on global order could be even more worrisome.
What we know
The tariff rates announced on “Liberation Day” were shockingly higher-than-expected. They included “baseline + reciprocal” levels by country. The tariff rates being implemented appear to be based entirely on the size of each country’s trade deficit with the U.S.
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What we think
Should these tariff levels persist for an extended period, it is increasingly likely to lead the U.S. economy into recession with upside risk to inflation, leaving the U.S. Fed in a precarious position.
Already elevated negative consumer and business sentiment to intensify, further restraining spending and likely bleeding through to labor markets.
While looking to appease the political base by aligning to a U.S. manufacturing renaissance, we believe the tariff rates were chosen with the goal of maximizing negotiating leverage.
While downplaying near-term risk to the economy in favor of long-term gains, political pressure is likely to intensify and could influence the speed of some sort of resolution.
Investment Implications
We remain cautious as near-term volatility is likely to remain elevated. We have been aiming to decrease risk through moderating equity exposures, given the unprecedented level of trade policy uncertainty.
We continue to rotate away from U.S. equities into markets outside the U.S. Should the unilateral trade war persist, the U.S. economy faces significantly more risk than the rest of the world.
As markets try to reprice this heightened level of uncertainty, we are monitoring for potential opportunities amid the dislocation.
Unchartered Tarifftory
January 2012 to March 2025
Sources: Chief Executive Group, Conference Board / Macrobond.
Additional Disclosure
Views expressed are as of 3 April 2025 unless otherwise noted.
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USA: T. Rowe Price Investment Services, Inc., and T. Rowe Price Associates, Inc.
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