Tariff Uncertainty Rattles Markets

Key takeaways:

Markets remain volatile amid trade war worries
The European Central Bank lowered rates again
China announced a 2025 growth target of 5%

On the latest edition of Market Week in Review, Senior Investment Strategist and Head of Canadian Strategy, BeiChen Lin, discussed how markets are reacting to U.S. trade policy uncertainty. He also reviewed the European Central Bank’s (ECB) latest decision on rates and shared key takeaways from China’s annual political meetings.

Markets jolted

Lin began by noting it’s been a particularly bumpy week in U.S. and global equity markets, primarily due to uncertainty around tariffs. Stressing that the situation remains fluid and dynamic, he said the week began with confirmation from U.S. President Donald Trump that the U.S. would impose previously paused 25% tariffs on Mexican and Canadian imports and increase tariffs on Chinese imports.

Following this development, Canada announced it would implement retaliatory tariffs on a subset of U.S. exports, while Mexico said it would unveil retaliatory measures over the weekend, Lin said. As a result, equity markets sold off sharply Monday and Tuesday, he said.

The rollercoaster ride continued Wednesday, with a noticeable rebound in markets after senior U.S. administration officials hinted the U.S. might delay tariffs on some products from Mexico and Canada, Lin stated. This was followed by confirmation from the White House on Thursday that Mexican and Canadian imports covered under the U.S.-Mexico-Canada Agreement (USMCA) would be exempt from tariffs for 30 days, Lin explained.

Despite this news, he noted U.S. equity markets still sold off sharply on Thursday, with the benchmark S&P 500 Index down by 2% at one point during the day. Why? Lin explained that even with the reprieve, plenty of questions about tariffs remain.

“For instance, what percentage of Mexican and Canadian goods will count as qualifying goods under the USMCA trade pact? And what will happen after the 30-day reprieve? Will these tariffs be re-implemented? If so, how might Mexico and Canada respond? And could the U.S. potentially impose tariffs on other countries or products? Or will a deal be reached to scrap tariffs altogether? These are all important questions that remain unanswered,” Lin noted.

Ultimately, markets dislike uncertainty—and that’s a big reason why there’s been so much volatility lately, he said. Lin finished by emphasizing that during times like today, it’s important for investors to stay disciplined and close to their strategic asset allocations.

“I think it’s critical for investors to take a long-term perspective when thinking about portfolio decisions, rather than reacting to all the noise and volatility in the markets,” he stated.

ECB cuts continue

Shifting to Europe, Lin said the ECB decided to lower interest rates by 0.25% at its March policy meeting. The decision was in line with what most economists were expecting, he added.

Lin noted the ECB characterized rates as “meaningfully less restrictive” than before, which was a change from prior statements. At the same time, however, the central bank also downgraded its growth forecast for 2025 and 2026, he said.

“The bottom line here is that moving forward, the ECB—like major central banks elsewhere—will likely remain data-dependent. From my vantage point, this means if the European economy were to slow due to new tariffs or other factors, the ECB could potentially cut rates by more than markets expect,” Lin stated.

China's growth goal

Pivoting to China, Lin noted that the world’s second-largest economy kicked off its annual political meetings—known as the Two Sessions—earlier this week. At the gathering, the Chinese government announced a 5% GDP (gross domestic product) growth target for 2025, he said. “This matches the growth target China set last year, but it’s important to understand that with each passing year, a 5% increase from the prior year becomes a higher hurdle to meet,” Lin explained.

He said that from his perspective, China will likely need to inject more stimulus into the economy in order to reach this target. While government leaders did express a desire to roll out more stimulus measures, such as potential tax cuts, no major stimulus packages have been announced, Lin said. Instead, Chinese leaders have unveiled incremental stimulus measures that are roughly in line with economist expectations, he explained. However, there could still be more stimulus to come, Lin added.

“Because China is very committed to boosting economic growth, I think there’s a possibility we’ll see more stimulus measures in the months ahead,” he concluded.

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