Global Equity Investor insight | May 2025

May 02, 2025
Jeremy Richardson 80 x 80.jpg
Jeremy Richardson

Reflecting on the past month, Jeremy Richardson discusses how the ongoing debate over trade policy and tariffs continues to create uncertainty in equity markets.

Highlights:

  • Three potential long-term scenarios emerging for trade policy.
  • Uncertainty from companies reflected in declining business and consumer confidence.
  • Companies with strong competitive positions should be better equipped to navigate market volatility and capture market share.
  • Effective supply chain management will be crucial, echoing challenges seen during the COVID-19 pandemic.

 

Jeremy Richardson

Hello, this is Jeremy Richardson from the RBC Global Equity team here with another update.

A lot has been going on in equity markets over the last month and as the debate over the long-term outlook for trade policy and tariffs continues we might think though that there's perhaps maybe three scenarios which are beginning to emerge from this controversy as to the longer-term landing zone for this debate.

The first of which is that we get a set of tariffs which are low enough to be accommodated by most businesses and consumers. And that there's a sort of a frictional level of tariffs which doesn't cause so much disruption. That this sort of volatility continues, and we can settle down to a much more normal way of doing business.

The second scenario is that the US focuses instead on particular industries of economic or strategic relevance. So things like semiconductors and pharmaceutical say. And those industries might have tariffs which are designed in order to bring production back to the US. But it will limit the amount of disruption felt in other industries.

The third scenario is something which is probably more akin to where I think a lot of expectations were immediately after the Rose Garden announcement we had last month, which is that we have higher levels of tariffs spread much more broadly across trading partners and that those are with us for an awfully long time.

And compared to where we were just a couple of weeks ago, where I think focus was very much on that third loss scenario. I think now people are a bit more open minded, given more recent communications about whether either of those first two I described you know should be priced into the post as possible outcomes.

Indeed, we know that there have been some postponements of those initial tariffs that have been announced in the Rose Garden and that a number of countries have been making their way to Washington to begin trade negotiations with the Republican administration. So investors will be sort of paying close attention to how those negotiations develop to get a steer for which of those scenarios ends up being the landing zone, so to speak.

For companies, though, this continues to be a period where it's very, very hard to have a lot of visibility given the uncertainty as to which of those sort of outcomes we're going to be, eventually arriving at. And they are finding it hard to make big investment decisions and plan for the future. And this is also filtering through, not just into business confidence, but also into consumer confidence. And that's been played out back to us in the form of survey data. So some degree of anxiety shall we say then in terms of the overall business outlook.

But for investors, as we're sort of waiting for more clarity to emerge, I think a couple of things are quite clear. The first of which is that companies who have a particularly strong competitive advantage will be better positioned than those without. If it's really hard to be able to say with confidence how your market is going to develop, if at least you have the opportunity to take market share from weaker competitors, then maybe you can go some way to insulating your business from some of this volatility.

The second thing, which is of increasing relevance, we think, is going to be supply chain management. And to many respects this is an echo of what we saw back in 2021 as when we were all exiting from the pandemic. When supply chains were incredibly disrupted with shipping containers in the wrong place and gaps on supermarket shelves. With trade tariffs likely to also deliver some degree of ongoing disruption then companies who are better placed to be able to manage their supply chains should be in a stronger competitive position.

Finally, you know, depending upon which of those three scenarios we end up at in terms of the overall sort of tariff picture, then there may be a consequence for the profile of competitive dynamics within the particular industries. Will the tariffs end up changing how companies and industries have to compete and operate?

Because this is a step change to a new sort of regime. It's a discontinuity and that for investors is something that we don't have a complete degree of clarity on. But it's something that we are beginning to consider as we go through our workstreams.

I hope that's been of interest. And I look forward to catching up with you again soon.
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