Trade policy headlines might sound like political theatre, but the market consequences are anything but entertaining. In recent months, investors have been whiplashed by sharp market swings, currency movements, and inflation jitters, all sparked by tariff announcements. So how do you navigate such an environment? 

Remember three core principles and you will not go too far wrong in investing:

 • Diversification is the one free lunch. 

• The market does not like uncertainty and tends to overreact (both ways). 

• In the short term the market is a voting machine; in the long run, it is a weighing machine. 

How Trade Policy Drives Market Volatility 

The recent market volatility, marked by both sharp declines and gains, is largely due to the ongoing dispute over US trade policy. Central to this is Trump’s approach to the global trading system. While there is a valid argument that WTO policies could use reform, some actions – like imposing tariffs on ‘penguin island’ – seem excessive. Regardless of the specifics, however, the uncertainty created by these policies is impacting prudent risk management across global markets. 

How the World is Responding to US Tariffs

Apart from China and Europe, few nations can afford to openly challenge Trump’s trade policies, let alone impose meaningful retaliatory tariffs. China has adopted a Canadian-style response (firm and confrontational), while Europe has followed Mexico’s diplomatic approach behind the scenes. However, both strategies have shown that the implemented tariffs are far from headline-worthy. Much like an ageing rockstar, the options for meaningful policy encores are running thin. 

Trade Turbulence Strengthens the Case for Diversification

Ironically, the case for offshore diversification is strengthened in response to Trump’s apparent push towards what until now has been a de-globalisation theme. Trade, with or without barriers, is driven by necessity and comparative advantages. As Brent Neiman, one of the authors of the formula Trump has used (and misinterpreted), points out: “Americans spend more on clothing made in Sri Lanka than Sri Lankans spend on American pharmaceuticals and gas turbines.”¹

Tariffs, Inflation, and What It Means for Consumers

The uncertainty surrounding trade policy is not only creating temporary market volatility but could also drive another round of global inflation. The specifics of tariff implementation matter, especially since Trump’s focus is primarily on the US trade deficit in goods, rather than its surplus in services. The transmission and effects of inflation across various sectors will differ by country and could even lead to disinflation through supply chains in the short run. However, the paper² by Neiman et al, finds that approximately 95% of tariffs are passed on to consumers, so the aggregate direction of travel is clear. Trade disputes and tariffs also disrupt flows, supply chains & practices, and ultimately undermine growth in the longer term.

Why Emerging Market Currencies Are Under Pressure

It is likely that the Kenyan Shilling will depreciate as a result of these trade policies. All else being equal, the US Federal Reserve is expected to keep interest rates higher for longer (to meet the inflation target of the Fed’s dual mandate). This will have a direct impact on emerging markets (EM), weakening their currencies further, especially in response to US tariffs. If growth targets are threatened (possibly leading to recession), the Fed’s monetary easing will likely boost growth in the US, making the dollar stronger relative to other economies.

Reframing Strategy: Investing Through Global Volatility

The recent market rotation from the “Magnificent Seven” to other US companies, and more recently to attractively valued opportunities such as real assets (which address inflation concerns) outside the US, highlights the benefits of a diversified, risk-managed offshore investment management approach which is: 

• Active (generating outperformance relative to benchmarks) 

• Fully globally diversified (by asset class, country, and sector) 

• Risk managed (balancing risk and return) 

• Backed by research from a team of experienced, qualified global investment experts 

In a world where policy shifts can echo globally, staying invested means staying informed and diversified. By aligning portfolios with long-term fundamentals and insulating against near-term political drama, investors can focus on what truly matters: sustainable growth, not soundbites.

If you're reviewing your portfolio in light of recent market shifts, now may be the time to talk to your investment adviser about a globally diversified approach backed by research and active risk management.

1. https://www.nytimes.com/2025/04/07/opinion/trump-tariff-math-formula.html

2. https://www.aeaweb.org/articles?id=10.1257/aeri.20190536