US tariffs trigger a price slide – what to do now

The recent US tariffs have caused considerable turbulence on the financial markets worldwide. In this article, we look at the background to these tariffs, their impact on the economy and offer investors strategies for making smart decisions in this volatile environment.

Note: Please note that investing in securities entails risks as well as opportunities.

Overview of the new US counter tariffs

On April 2, 2025, which President Trump has designated as “Liberation Day”, comprehensive tariffs on imports into the USA were announced. These include a general tariff of 10% on all imports as well as additional, higher tariffs for over 60 trading partners. The calculation of these additional tariffs is based on the US trade deficit with the respective country. For example, an overall tariff rate of 54% was set for China, while Vietnam was hit with 46%, Taiwan with 32% and the European Union with 20%. Trump has once again raised the stakes with China, and is now increasing tariffs to 104% (!).

US President Donald Trump at the announcement of the extensive tariff plans. (c) (c) BRENDAN SMIALOWSKI / AFP / picturedesk.com

Negative reaction from the financial markets

The announcement of these tariffs and China’s announcement that it would impose a 34% tariff on all US goods led to a sharp correction in US equities on Friday. Technology companies such as Apple, Nvidia and Tesla were particularly hard hit, suffering significant price losses. More cyclical stocks such as financials and car manufacturers also corrected sharply. Note: The companies listed here have been selected by way of example and do not constitute an investment recommendation.

However, it should be noted that prices had climbed to record highs on many stock exchanges by mid-February. A correction was therefore not just a matter of time, but inevitable in order to “catch one’s breath”. The extent of this was somewhat surprising, triggered by the US import tariffs. Even the biggest pessimists had not anticipated such high tariffs imposed by Trump.

Economists warn of stagflation

Economists are warning of the potential negative consequences of these tariffs. They predict an increase in inflation, a slowdown in economic growth and a possible rise in unemployment. Some experts even fear stagflation, i.e. a combination of stagnating growth and high inflation. Tariffs effectively act like a tax increase for the USA. The drastic increase in the effective tariff rate from 2.3% to an estimated 20% represents a considerable shock for the USA and the global economy. The risk of a recession in the USA has increased significantly.

What should investors do now?

In times of such market volatility, it is crucial to act prudently. Here are some strategies that an investor can consider:

1. Diversification of the portfolio – mixed portfolios or investment funds

Spread your investments across different asset classes and regions to minimize risk. There are interesting, broadly diversified investment funds that actively shift money into different asset classes according to your assessment, taking advantage of short-term opportunities and at the same time trying to cushion risks. In volatile times like these, these funds are in demand. Investments in securities generally entail risks as well as opportunities.

In view of the global uncertainties, the fund managers at Erste Asset Management reduced the equity allocation in the mixed portfolios even before the tariffs were announced. However, it makes little sense to abandon equities altogether because, as the past has shown, markets can “turn” quickly and any price losses can then be recovered.

2. Investment in more defensive sectors

Sectors such as healthcare, utilities and consumer staples tend to be more stable in uncertain times. If you invest in equities, an actively managed fund could be interesting, as it does not just stick stubbornly to an index, but also switches stocks. However, even actively managed funds can be subject to fluctuations.

3. Use of cost averaging

If you are thinking of taking advantage of the fall in the share price to enter the market, you could do so gradually. Divide the planned investment amount into several steps over the next few months. The s fund plan is a tried and tested way of doing this. You may not catch the optimum low price, but it is a way of smoothing out the entry price over time.

Please note: The average cost effect decreases as the term of the savings plan increases, as the assets saved behave more and more as if the total amount had been invested once. Depending on market developments, a one-off investment can also prove to be more favorable. Investing in securities involves risks as well as opportunities.

4. Safe-haven assets such as gold or short-dated  funds

So-called “safe-haven assets” are in demand in such a phase. In recent weeks, the gold price has benefited massively from the trend towards investing in safe asset classes.  

Short-term bond funds are also less affected by price fluctuations, as they repeatedly invest money in short maturities and could also benefit from potential interest rate cuts in the future. Erste Asset Management offers various funds with the designation “Reserve”. It should be noted that rising interest rates can lead to losses for these funds.

5. Do you feel unwell?

If you feel uncomfortable with your securities portfolio, visit your advisor. Have your portfolio checked. Perhaps a more defensive orientation, i.e. more bonds than shares, is an option that you feel more comfortable with, even if you would forgo long-term earnings opportunities. It should be noted that investments in both equities and bonds entail certain risks.

What mistakes should be avoided?