The stock market crash in the wake of President Trump’s hike on import tariffs will affect all of the rest of the world – including North East England.
On 2 April – what he called “Liberation Day”- Trump described the current US trade deficit of US$1.2Tn a “national emergency”. He imposed a 10% baseline tariff on 57 countries with additional “reciprocal levies” depending on bilateral trade balances. The EU was slapped with 20%. The worst hit were in Asia: Vietnam (46%), Cambodia (49%), and worst of all China with 54%.
The result was the largest stock market drop since the crash of 2020 caused by the Covid-19 recession. In the two days to 4 April, the Dow Jones Index fell by 9.48%, S&P 10% and Nasdaq 11%. In all, over US$6.6Tn was lost on the US stock market.
This was no one-off market dip. Although Trump had inherited a strong economy in January, the US stock market had already entered a decline in February, spooked by his hints at tariff hikes and looming trade wars with China, Canada and Mexico.
The days after 2 April also saw a series of market falls and jumps as Trump made new announcements, such as on negotiating with Japan, or increasing levies on China. The upheavals dented stock markets around the world, wiping US$9.5Tn off stock prices between 2 and 9 April, according to Bloomberg. In the UK, the FTSE100 which tracks the shares of the top companies, lost more than 13%.
The markets rallied on 9 April with Trump’s announcement of a 90-day postponement of the reciprocal levies to allow time for negotiations with trading partners.
China however was punished with a tariff increase to 145% for refusing to negotiate.
The levy on Chinese imports was raised again to 245% on 16 April.
Pension fund impact
US stock market volatility doesn’t just affect the trust funds of rich Americans. It hits the investment funds managing ordinary people’s savings.
According to the Daily Record’s analysis of ONS data, UK workers mid-career will have lost nearly £6,000 of their retirement fund.
The Daily Record also reports that Scottish pension funds lost £12bn in the tariffs chaos.
But fund managers spread the risk, also investing in government bonds, property, land and commodities. So the effect of a dramatic crash might not be as drastic as it first appears.
Not all pension funds offer the same protection to their members. It depends on the kind of pension pot you hold.
Defined benefit pensions
A Defined Benefit scheme is run by the saver’s employer. The pension promised will be a certain amount, based on final salary or time spent with the employer. So members of these schemes have their pensions guaranteed despite the vagaries of the stock markets.
The councils of the Tees Valley – Middlesbrough, Stockton-on-Tees, Redcar and Cleveland, Hartlepool and Darlington – all run Defined Benefit Schemes for their employees under the Local Government Pension Scheme (LGPS), thus giving the best protection from market fluctuations. All but Darlington (who are administered by Durham County Council) pool their funds in Teesside Pension Fund (TPF). Administered by XPS Group, TPF assets are then managed by Border to Coast Pension Funds which handles £52.3bn of assets for their 11 partner funds around the country.
Border to Coast and XPS are unwilling to disclose any losses they made during recent events.
TPF and the LGPS for Tyne and Wear are planning a shared service for their pensions to kick off this summer. Together they will manage some £19bn of investments.
Defined Contribution Pension
Many employers do not guarantee a final pension income. With a Defined Contribution Pension, the saver builds up a pot of money that can be used for a retirement pension.
The pension fund again spreads the risk of investments, often switching savers to less volatile investments as they reach retirement age.
Personal Pensions
Personal Pension Plans are held by individuals rather than employers, but they are mostly managed by pension funds who know how to spread risk.
Standard Personal Pensions offer a range of ready-made investment funds.
A Stakeholder Pension – a Defined Contribution Pension- is designed to be more accessible and easier to run.
SIPPS -Self Invested Personal Pensions – can be managed by a pension fund, or the individual can choose their own investments.
There is no doubt that those nearing retirement will have lost part of their pension pots due to the tariff-induced crash. So the annuity – the retirement income – they can buy will be smaller. Those who handle their own investments but don’t have the expertise of a fund manager could be the worst-affected. Readers of the Observer, sharing their concerns, reported having lost up to a quarter of their retirement savings.
Younger savers are less impacted. Pension saving is a long game and some volatility can be counteracted by fund managers switching to safer vehicles. We can also expect a recovery in the markets.
After all, this is not a fatal weakness in the US economy as in 2008, when sold-on sub-prime mortgages, found to be worthless, blew a hole through the balance sheets of the global financial system.
Insider Trading?
The US carries a whopping US$36.22Tn debt load as of 3 April, according to the US Senate Joint Economic Committee. But the underpinnings of the economy remain strong. The recent stock market crashes are entirely self-inflicted – by Trump.
So it was not surprising to see a substantial rallying of the market as soon as Trump announced the 90-day grace period.
There are claims that the tariff announcements were made precisely to benefit certain investors, by creating a dip in the market followed by the 90-day grace period declaration which saw the markets bounce back. Investors buying and selling at the right time could make a killing.
Four hours before announcing his grace period, Trump posted on his Truth Social account ‘”THIS IS A GREAT TIME TO BUY!!! DJT”.
Democrat leaders have accused Trump of insider trading.
Democrat senator Adam Schiff is calling for an investigation into the Trump announcements. He said:
“Today Trump removed many of the tariffs he had imposed in this on again off on again policy. This has just wreaked havoc on the markets of course but there is another profound danger as well. And that is insider trading within the White House.”
Tariff policy – where from?
With a baseline tariff of 10% and duties on cars of 25% the UK will not be too badly affected by Trump’s initial tariff list, due for re-negotiation.
But a knock-on effect of a trade war will hurt every economy around the world including Britain’s, as Trump single-handedly achieves a paradigm shift from global free trade to worldwide high-tariff protectionism. A global slump would have more impact than fund losses.
Whose great idea was this? The president’s economic advisor who recommended the strategy was Peter Navarro, discovered by Trump’s son-in-law Jared Kushner – who liked the title of his book “Death by China” which he had found on Amazon.
According to MSNBC journalist Rachel Maddow, Navarro’s book relies heavily on the expertise of one economist – called Ron Vara. But it was later revealed that Ron Vara didn’t exist – he was just an anagram of Navarro.
There are hints from the Oval Office that the new trade “deals” might be contingent upon policy changes unconnected to trade that chime with Trump’s populist authoritarianism and protectionism.
For instance the UK might be expected to repeal its LGBTQ+ Hate Speech legislation, according to comments by Vice President JD Vance.
There are also indications that the UK might be expected to cool its relationship with China.
Observers are now suggesting that the US might already be in recession. MSNBC’s Lawrence O’Donnell has coined the phrase “Make America 1932 Again!”
Meanwhile the stock markets remain nervous, reacting every time Trump moves his lips.
On Monday 21 April, US stocks dipped, with capital seeking refuge in gold stocks which are at an all-time high.
This came after more Trump posts on Truth Social, calling Jerome Powell, Chair of the Federal Reserve, a “major loser” for refusing to raise interest rates.
Trump’s promise on Tuesday 22 April that he’d be “very nice” to China to reach a deal raised share prices again.
Latest: The US Government has announced its intention to slap tariffs of up to 3,521% on solar panels from Cambodia, Vietnam, Thailand and Malaysia.
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