Investors are eagerly awaiting April 2, when new US trade tariffs are expected. “We expect the US to hit the EU with 25% tariffs, as it did with Canada and Mexico,” says Mark Dowding, CIO at RBC Bluebay Asset Management. “The EU is poised to retaliate, which will only exacerbate trade tensions.” 

Dowding expects trade wars to become an even more dominant theme in the coming quarters. However, he believes that the policy of extreme tariffs will give way to a more moderate course by the end of 2025, with decisions going through Congress.

Economic risks 
According to Dowding, Washington overestimates its power: “There is a sense that the US can impose its will, but tariffs act as a negative supply shock. They slow consumption, depress growth and fuel inflation.” 

If inflation rises due to disrupted supply chains, the Fed could find itself in a difficult position. “We saw in 2021 how dangerous it is to view inflation as ‘temporary’. That led to a rate hike cycle that had to be longer and more substantial than hoped,” says Dowding. 

Meanwhile, Trump is calling on the Fed to look past price increases and cut further. “But monetary policy is not a weapon against supply shocks. Fiscal policy has a bigger role to play here.” 

Turning point for America?
Dowding wonders whether the period of exceptional American growth (exceptionalism) is coming to an end. “TINA (‘there is no alternative’) drove capital flows to the US, but in 2025 sentiment could turn. We could see a revaluation of European and other markets.” 

Some are talking about the ‘end of an empire’, but according to Dowding a tipping point cannot be ruled out. “Capital flows have been driving up US consumption and asset prices for years. If that cycle were to reverse, the landscape could look drastically different. Ironically, ‘America First’ could turn against the US.”

Read the latest updates from BlueBay CIO Mark Dowding