The potential impact of Trump’s tariffs on charity portfolios

On 2 April US President Donald Trump announced ‘Liberation Day’ with 10% universal tariffs on imports into the US, plus ‘reciprocal’ tariffs on the 60 countries which have the highest trade deficit with the US. However, on the 9 April he announced a 90 day pause. 

China was excluded from this pause due to its retaliatory tariffs, and now both countries are threatening to impose tariffs exceeding 100% on each other's goods. President Trump’s partial roll back of protectionist measures could ease financial market turmoil but charities and other investors are still facing challenges from US-China tensions over tariffs, recession risk and the potential deprecation of the US dollar.  

Tariffs are taxes or duties imposed by a government on imported or exported goods. Import tariffs are used to regulate trade by increasing the cost of foreign products, making them less competitive compared to domestic goods. Tariffs can serve various purposes, such as protecting local industries, generating revenue for the government, and influencing trade policies. However, they can also lead to trade disputes, impact international relations and markets. 

The market consequences have been significant, with equity and some bond markets falling sharply and high levels of volatility. Some recovery was made following the announcement of the ‘pause’, with the S&P 500 falling more than 10% after Liberation Day and then rising 9.5% after the pause - the biggest single-day rise since 2008. 

Nobody knows what is coming next. Here we summarise the potential impact on investments since higher tariffs were introduced by Trump and highlight some points that charity trustees might like to raise with their investment manager.  

Markets went into a tailspin over the escalating tariff news coming out of the White House. But since the ‘pause’ was introduced markets have recovered but not at levels seen earlier this year. At the time of writing, the global market has fallen 6.1% from the February peak, having been down over 16%. The jury is out on whether the new economic and geopolitical environment will cause (or contribute) to a recession, or whether this volatility is an opportunity for bargain-hunters. Perhaps the drop we saw was a market correction and there are still reasons to be cautiously optimistic while keeping an eye on inflation and investment income.  

At the beginning of the year, analysts were predicting that inflation would continue to trend downwards as growth rates improved. However, forecasting growth and inflation now is much more difficult as it depends on whether global leaders can negotiate the tariffs down, particularly in sectors that have been hit the hardest such as industrials, aerospace and autos.  

We believe it likely that inflation will go up in the US because of tariffs, and interest rates could fall to support the economy. This means bonds could perform better in this environment. The risk associated with higher tariffs can be counteracted by adjusting portfolios to make them more defensive. 

Tariffs could significantly impact corporate earnings and the dividend income that investors get from equities. However, this is not yet the market consensus and charities should also consider the medium to long-term average capital value of their portfolios.  

Gilts and bonds are also included in most charity portfolios because they provide a regular income through interest payments. However, in the current environment, even gilts must be chosen carefully, especially those with longer maturities, as they can fluctuate more than short-dated ones when interest rates change. 

Evelyn Partners’ portfolios are dynamically adjusted to meet needs set out by charities. Some may, however, need changes and where a more defensive approach is required these are likely to have already been made.  

We cannot predict what will happen but as markets are always going up and down there’s a chance you might not get back the amount invested. While there are more risks there are also opportunities and strategies to consider, including: 

1. Improving portfolio resilience: This would involve focusing more on high quality, economically resilient businesses. This approach has proven its worth so far this year. It’s important to remember that not all companies are affected by tariffs equally. Global stock markets are made up of physical goods companies that will be affected by tariffs. One way to reduce the risks associated with tariffs is to include services or digital goods in portfolios which by their nature are tariff exempt. Tariffs can’t be avoided in all instances, so this has been considered with exposure to businesses that are able to absorb the cost increases or stable businesses that are less exposed to the economic cycle.   
2. Taking advantage of the market broadening out of the US: Some exposure to US investments is arguably unavoidable, due to the dominance of major listed American companies in the global market. Although US firms have been highly profitable for investors recently, there are also promising opportunities in other regions, such as Europe and emerging markets so it’s important to ensure portfolios are well diversified. You should ensure you understand any specific sector risks involved. 
3. Some exposure to commodities: Commodities, like gold, can provide a safeguard during periods of market instability, serving as a buffer against fluctuations. The gold price is still rising as central banks continue to buy the yellow metal as trust in the US dollar declines as a store of value and fears continue of more sanctions against supporters of Russia following the invasion of Ukraine. Commodities, though, can come with greater risks.
4. Lower valuations: Many companies remain strong despite the new challenge of tariffs. If you can look past the tariffs, you could benefit from taking advantage of lower valuations, which means buying high quality businesses at a discount.
5. Diversification: In times of uncertainty, it’s important to remember the benefits of diversification. A balanced portfolio will help to accommodate fluctuations in markets because it diversifies investments across various asset classes and countries, reducing the impact of volatility in any single market or sector. This approach helps to mitigate risk and can provide more stable returns over time. 

Evelyn Partners can offer charities various options to cater to different investment needs. For cautious investors, the Cash and Cautious Bond portfolio could offer some further protection against volatility and is an alternative to traditional cash accounts. It’s important to note that, as with all investments, capital is at risk and investing in bonds doesn’t offer protection under the Financial Services Compensation Scheme (FSCS), which traditional cash accounts do – up to £85,000.  

While bond portfolios can be riskier, they could offer better returns. Some charities could benefit from liability matching within this portfolio through gilt ladders. We also offer bespoke solutions that adjust portfolios as income needs change.   

Overall, for charities with a longer-term investment horizon, it's best to maintain a steady approach despite market volatility. Avoid knee-jerk reactions to falling markets. There are always risks when it comes to investing and the value of investments and the income from them can go down as well as up. Remember, even in downturns, there are investment opportunities. 

Evelyn Partners works with over 1,250 charities and manages £3.4 billion of charity investments. To find out more about how tariffs could impact charity portfolios, speak to your usual Evelyn Partners contact or book an appointment online.