The next phase of tariffs is here: what investors can learn from past market turbulence

The Trump administration has moved to the next phase of its tariff regime, sending letters to various countries detailing the rates that will apply to products supplied to the US.

US president Donald Trump might be treating it in the same way as a final notice letter if bills are unpaid. In essence, he is telling foreign trade officials to get their act together and agree to a trade deal or face higher tariffs.

We now have some clarity on how the system will work. Rather than the previous hard deadline of 9 July, where all countries without a trade deal would have reverted to the higher rates announced in the Liberation Day speech on 2 April, the new tariff regime begins on 1 August. Trump has indicated this new date is not even set in stone.

Japan and South Korea are among the first to receive letters from Trump, with the president renewing his threat of a 25% tax on products entering the US from either country.

In all cases, any ‘deals’ are likely to be frameworks rather than fully-fledged trade agreements as these can take months or years to complete.

What does this mean for investors?

More countries are expected to confirm trade deals in the coming days and weeks, and extensions are possible beyond 1 August for countries where negotiations are deemed to be going well.

In theory, this clarity – albeit still slightly murky rather than crystal clear – should have had a positive reception from investors as the hard deadline has effectively been pushed back three weeks. However, markets have been mixed across Asia, Europe and the US since the news broke.

What’s troubling investors is Trump moving the goalposts yet again. He has form in constantly coming up with new terms and conditions and has now threatened an extra 10% tariff on countries who align themselves with ‘anti-American policies’ of BRICS nations.

He also suggests some tariffs could be greater than the previous maximum amount on the Liberation Day menu. Investors would much prefer one set of rules and for the Trump administration to stick to them.

Sector-specific tariffs

In addition to country-level tariffs, various industries including pharmaceuticals, semiconductors and mining found themselves in the firing line of Trump’s latest demands.

Trump plans to impose 50% tariffs on copper imports into the US and he also threatened up to 200% on pharmaceutical imports, albeit not immediately.

At the time of writing, Trump indicated there would be a year and a half transition period, implying that drug companies had a window of opportunity to increase US-based manufacturing facilities.

Producing more on American soil would mean less exposure to tariffs, which Trump might argue is beneficial for these companies and for the US, as it would create more jobs.

What we can learn from previous market selloffs

There is scope for the tariff landscape to keep evolving, and that’s why investors mustn’t become complacent. If we do get an update that spooks the investment community, it’s worth looking at previous selloffs to see how markets behaved as history has shown the power of patience.

Source: AJ Bell, LSEG. 1 July 2025. FTSE All World price in dollars

Markets can overreact as investors try to second-guess what’s going to happen and many people take the extreme view – fearing the worst. Following a knee-jerk reaction, we often see more rational thinking and that can help markets to rebound following a correction.

The Liberation Day speech on tariffs in April triggered an 11% slump in the FTSE All-World index, a benchmark for the global stock market. Someone who panicked at the sharp decline in share prices and sold investments would have missed out on a rapid recovery. It only took 30 days for the global index to fully recover, and it is now trading 10% higher than pre-Liberation Day.

This was one of the quickest bounce-backs from major market selloffs over the past decade. For example, it took 190 days for the FTSE All-World to recover from the Covid crash in 2022 and a year to claw back from the 2015-2016 China crisis where investors feared problems in China’s financial system.

What triggered the market recovery from the Liberation Day selloff?

The 90-day pause on the Liberation Day tariff plan originally brought some calm to markets after a chaotic period which saw equities plummet and US government bond yields soar.

Shifting tariffs to a 10% baseline effectively kicked uncertainty down the road and allowed investors to temporarily stop worrying about any potential hit to economic activity and corporate profits.
We’ve already seen widespread downgrades to GDP forecasts in many parts of the world, and on a global basis, linked to trade uncertainty.

Companies have put investment on hold until they get clarity on tariffs and both businesses and consumers are showing signs of being more cautious, factors that have combined to feed through to lower earnings expectations. For example, earnings forecasts for the S&P 500 index have been slashed by 5.9% since Liberation Day.

It’s hard to imagine that businesses will rush to reinstate investment plans just yet. That might explain why the latest developments regarding tariffs haven’t triggered a market relief rally, nor another selloff. It’s a waiting game and that remains the case while events continue to unfold.