“We use the term risk all too casually, and the term uncertainty all too rarely.”( John Bogle)
Investors are living through a perma-crisis in which the goalposts have shifted repeatedly, nowhere more so than in US trade policy. Trump’s on-again, off-again tariff decisions have created a landscape in which businesses cannot plan, consumers cannot predict, and investors cannot price risk with confidence. The World Uncertainty Index is hovering near historic peaks, and global business and consumer confidence indices are in wait-and-see mode. For investors, this uncertainty has become a ‘volatility tax’, calling for portfolios with exposure to real assets and inflation hedges.
The tariff pendulum: Supreme Court 1 – Trump 0. Trump 1 – Certainty 0.
Tariffs made headlines again in a landmark 6-3 decision by the US Supreme Court, which ruled that the International Emergency Economic Powers Act (IEEPA) does not grant the President the authority to impose tariffs. Markets rallied briefly on not only the prospect of $175 billion in potential refunds for importers but also on the first signs that his executive powers were being curbed.
However, in response, Trump quickly announced a 10% global tariff, which he subsequently raised to 15% … triggering the S&P 500 Index to fall about 1%. (All figures accurate at time of writing.) In imposing these fresh tariffs, Trump invoked a rarely used provision, Section 122 of the Trade Act of 1974, that temporarily (for up to 150 days without specific congressional approval) allows across-the-board import surcharges.
Why uncertainty comes at such a cost
While a 15% tariff is a tangible and significant cost, it is the uncertainty precipitated by the Trump administration that wreaks the most havoc on businesses, consumers, investor sentiment, and ultimately real-world metrics and decision-making.
- Interest rate uncertainty: Tariffs are inherently stagflationary, pushing up goods prices (inflationary) while dampening economic growth (contractionary). This raises the risk of prolonged higher inflation, narrowing the Federal Reserve’s and the SARB’s policy options. While central banks are expected to remain cautious about reducing interest rates this year, tariff fluctuations make it difficult for investors, companies, and consumers to know what to expect.
- “Risk-Off” sentiment swings: For South Africa, tariff uncertainty is a double-edged sword. When global trade tension rises, the rand, seen as a “proxy” for emerging market risk, often takes a hit. However, as US policy has become more erratic, safe-haven demand for gold has provided some support to our currency, given that South Africa is a major producer of the precious metal.
- Capital allocation uncertainty: When the business “rules of the game” can change overnight, companies are hesitant to make decisions. This delays investment. For a South African portfolio, this means local firms exposed to global supply chains, from automotive components to agricultural exports, cannot safely predict how much they can make.
What this means for investors
For investors, the cost of this uncertainty is a “volatility tax.” In an era of unending tariff pivots, the traditional 60:40 ratio of equities to bonds is under pressure because these asset classes have become atypically correlated. Thus, it’s no longer sufficient to diversify across listed asset classes and geographies. A built-to-last portfolio that prioritises resilience over forecasting the future requires exposure to “real assets” and inflation hedges, such as gold, which can withstand the policy shocks that paper assets cannot. As an investor, it’s important to remember that while the legality of tariffs may be debated in the courts, the economic and financial-market reality of a more expensive, more volatile world is already here. Investment portfolios and decision-making need to reflect this.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
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