The US President Donald Trump’s trade war has bleaked the outlook for the global economy, with fund managers being supported by long-term uncertainty and positioning portfolio for new trade and political dynamics. This reduces forecasts of economic growth for countries already targeted by US and Trump’s trade policies. Tariffs are considered likely to raise inflation, complicating the work of central banks to consider lower fees to support economic growth. The front and rear headlines create uncertainty and are drawing attention among investors facing extremely difficult economic outlooks for forecasts.
Some equity fund managers have shifted towards equities in European and Asian markets, where the economy appears to be in a better position to survive the trade war thanks to government financial efforts.
Growth forecasts due to trade war concerns
Optimism about US health and the global economy has been hit hard. Prediction from the US Federal Reserve See that GDP growth is 1.7% this yeardown from the December forecast of 2.1%. Federal Reserve Chairman Jerome Powell warned that tariffs are disrupting the outlook for inflation.
When Bank of Canada officials cut interest rates in early March, authorities warned that “monetary policy cannot offset the impact of the trade war.” In a speech last week, bank governor Tid McClem warned that “depending on the scope and duration of the tariff, the economic impact can be severe. Uncertainty is already causing harm.”
JP Morgan Economists recently increased the probability of a recession in the US to 40% as a result of trade policies. Goldman Sachs Economist shaved its US growth forecast for 2025 from 2.2% to 1.7%. At the Morning Star of the US Senior Economist Preston Caldwell I’m writing that “The rise in tariffs will clearly reduce actual GDP.” In his estimate, the full implementation of the tariffs proposed by Trump in his campaign will reduce the long-term level of US GDP by 1.6%, while even the watered-down version will decrease by 0.32% over the next three years.
A recent survey by the London-based Centre for Economic Policy Research shows that the majority of the 32 economists surveyed believe that US tariffs will reduce EU growth to less than one percentage point over the next four years.
Meanwhile, the latest economic outlook issued on March 17th shows that the Paris-based OECD has downgraded its global growth outlook this year and next year. Global GDP growth forecasts have been reduced from 3.3% in 2025 to 3.1% from 3.3% in 2026 to 3.0%. Based on the assumption that the US will check tariffs in Canada and Mexico in April (and they will be bilateral), the OECD expects Mexico is pushing its deep resizing in 2025 to Mexico. In 2026, we reduced our previous estimate by 1.3 percentage points.
Further fragmentation of the global economy is of important concern. The OECD emphasized that “a higher and wider increase in trade barriers will reach global growth and increase inflation,” and that “above-expected inflation could encourage more restrictive monetary policy and lead to destructive restructuring in financial markets.”
“Therefore, it is highly likely that the US economy has slowed significantly in the short term and has dragged the global economy into the future,” said Michel Saune, chief investment officer at La Finance des Etciquier.
From confidence to pessimism in US stocks
Trump’s victory in the US presidential election in November 2024 was considered positive for US stocks and negative for Europe and emerging markets, particularly China. “The market consensus seemed to be that the benefits of deregulation and tax cuts out outweigh the price increases from the implementation of tariffs,” explains Hugh Shepherd, investment specialist at Federate Hermes.
However, this year the exact opposite has been seen. The US stock market is slowing as escalating trade tensions and economic uncertainty puts investors in a dominant position. “The so-called Trump trade has included bitcoin, small caps, banks and deregulation. “The tenors at the bottom of the market are defensive, the defensive sector outperforms performance and the circularity is declining.”
Since Trump’s inauguration on January 20th, he has been in Europe and emerging markets (particularly Chinese technology stocks) I have it It was executed very well. European stocks, for example, barely fluttered when Trump threatened to raise European imports, including cars. “Non-US markets are advantageous with low ratings, as are the potentially positive fiscal impulses in Europe and China,” explains Thomson.
“Investors have been invested in the US and the valuation gap with other markets has become too far away,” said Stephen Bell, chief economist at Columbia Thread Needle Investment.
The non-US market has performed better for reasons beyond trade policy. Trump’s approach to the Ukrainian war led to a reassessment of European defence spending. Germany has broken its long-standing commitment to low debt, and has significantly boosted government spending. “We are pleased to announce that we are committed to providing a range of services to our customers,” said Mark Haefele, Chief Investment Officer at UBS Global Wealth Management.
“The good news in all of this is Trump’s positive catalyst for unity in Europe,” says Saugne. In contrast, dramatic changes in US policy have created uncertainty within the country. This is because the new administration has made it clear that it willingly tolerate the weakness of the economy and markets for now in pursuit of long-term objectives.
“Increased tariffs could increase costs for U.S. consumers, and widening budget deficits could increase bond yields and maintain interest rates for longer. This could increase borrowing costs for U.S. companies, increase U.S. government spending costs, and further narrow government spending.
Periods of rising uncertainty
The fund manager says one challenge is the difficulty of identifying Trump’s intentions. Shepherd expects a “period of increased uncertainty.” It’s probably easy to predict which cards Trump will play in economic relations with Asian countries and Mexico, but even so, “it’s very difficult to know what kind of deals will be put on in the end. I hope many countries will try to work with the US in mutually beneficial trade transactions.
Still, many disadvantageous scenarios seem possible. “The worst-case scenarios can include long-term trade disputes, leading to increased inflation, supply chain disruptions, and retaliation from trading partners that could negatively affect global economic stability,” explains Thomson. “As the world’s dominant economy, the US recession will have a negative impact on markets around the world.” He believes that US/Canada/Mexico tariff spats may be short-lived, but that Chinese people are likely to be drawn out. “The trade war already causes too much damage. Uncertainty kills investments, expectations of inflation hinders consumer confidence, and labor markets kill hints for the recession stage.”
Trade war concerns lead to caution
“Portfolio managers are taking a more defensive stance,” says Thomson.
Shepherd believes it is important to consider potential secondary effects: currency devaluation, domestic stimuli, new geopolitical alignment. He said, “We continue to focus on companies with a clear competitive advantage of low leverage that benefits from secular trends. For example, portfolio allocations are away from companies that rely heavily on exports from China to the US due to the sharp risks they potentially face.”
Saune is blessed with volatility. “We are hoping for significant market disruption by summer and hedged accordingly. In this new environment, good geographical risk diversification is more than necessary and should continue to support European and Asian markets.”
Bell said: “Our globally focused stock pickers are underweight in US stocks and have been investing in Chinese companies for a while, not because of asset allocation decisions, or because they found an attractive company that is affordable and affordable outside the US.”
