President Trump’s newly announced tariffs on April 2nd, which he ironically labelled Liberation Day, have sent shockwaves through global financial markets. Through a highly simplistic calculation that lacks economic rigor, the U.S. government has introduced so-called 'reciprocal' tariffs for most of its trading partners, aiming to shield American industries. While the administration claims this move is intended to create a more level playing field, these tariffs rank among the highest seen in decades, reminiscent of the infamous Smoot-Hawley Tariff Act of 1930. That legislation exacerbated the Great Depression by igniting a series of retaliatory trade wars, raising concerns that history may repeat itself.

All countries now face a minimum 10 percent tariff on goods exported to the U.S., but some regions are hit harder, with China now facing a 54 percent tariff and the European Union 20 percent. The tariffs are set to take effect on April 9. While the EU is still deliberating its response, China has already retaliated with 34 percent tariffs on U.S. goods and export bans on rare earth minerals. With each countermeasure, the risk of a full-blown global trade war increases.

Growing fears of a global recession

The newly announced tariffs pose a significant threat to the global economy. Economic activity is likely to slow due to rising costs, leading to higher consumer prices in the U.S. and weakening demand. Additionally, the heightened uncertainty surrounding U.S. trade policy - including potential further tariff hikes, negotiations resulting in lower tariffs and any retaliatory measures - is expected to dampen household consumption and business investment.

The economic impact will likely not be uniform across regions. The U.S. itself is at risk of being the most affected major economy, as tariffs on all imported goods will likely drive up consumer prices sharply. These price effects will be higher for products where there is no American substitute. Some countries, such as the UK, may benefit from relatively lower tariff rates, but the broader effects of a global trade war and increased market uncertainty will likely negate any potential gains. The EU could face the dual challenge of lower economic growth and lower inflation, especially if it refrains from forceful retaliation. China may attempt to redirect products originally destined for the U.S. to other markets, particularly Europe, leading to an influx of lower-priced goods. Overall, increased policy uncertainty, second round and retaliation effects will have an uncertain, but definitely negative influence on the global economy. As a result, we expect more market volatility in the coming weeks.

Market turmoil with regional and sectoral divergences

Financial markets worldwide have reacted strongly to Trump’s tariff announcement, though the impact has varied by region and sector. U.S. equity markets suffered the most severe losses in the initial days, reflecting the significant risks to domestic economic growth and inflation.

At a sectoral level, technology stocks were among the hardest hit. Many major U.S. tech firms are highly dependent on Asian supply chains, and the increased tariffs on those countries have rattled investor confidence. Energy, financials and consumer discretionary sectors also saw sharp declines, driven by concerns that a recession could reduce energy demand, lower consumer spending and increase credit risks for banks. Conversely, defensive sectors such as consumer staples, telecoms and healthcare experienced more modest declines as investors sought relative safety.

Long-term government bond yields have fallen in response to lower growth expectations, while markets have increasingly priced in central bank interest rate cuts. Investors appear to believe that concerns over economic stagnation will outweigh inflationary pressures, prompting monetary easing to cushion the downturn.

Triodos funds show resilience

Despite the overall market turmoil, the listed Triodos equity, bond and mixed funds have so far demonstrated relative resilience compared to benchmark indices. This is largely due to their lower exposure to the U.S. market and a stronger emphasis on high-quality, defensive names. Our strict minimum standards and careful bottom-up company selection have helped mitigate losses in the most exposed regions and sectors.

The non-listed Triodos funds are also likely to be relatively resilient, as they hold no direct investments in the US and have a relatively low correlation to equity markets.

Impact Investing: more essential than ever

Now more than ever, impact investing provides the best strategy for safeguarding both people and the planet against economic shocks. By prioritising sustainable development, impact investing strives for a world where all people have the necessary tools and resources to live fulfilling lives, while the economy operates in harmony with nature rather than against it, within planetary boundaries. We truly believe that this approach not only upholds ethical principles but also supports long-term, sustainable financial returns as it makes most economic sense.

By focusing on companies and projects that contribute positively to society and the environment, impact investing helps create a future where economic wellbeing and planetary boundaries go hand in hand. As uncertainty grows in the global economy, investing with purpose remains a vital tool for ensuring stability, equity and resilience.

We will continue to monitor developments closely and adjust our fund positioning accordingly to navigate these turbulent times.