Robeco logo

Disclaimer

Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS – The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorised to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

Robeco Institutional Asset Management UK Limited (“RIAM UK”) markets the Funds of Robeco Institutional Asset Management B.V. (“ROBECO”) to institutional clients and professional investors only. Private investors seeking information about the Robeco Funds should consult with an Independent Financial Adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing the website.

RIAM UK is an authorised distributor for ROBECO Funds in the UK and has marketing approval for the funds listed on the website, all of which are UCITS Funds. ROBECO is authorised by the AFM and subject to limited regulation by the Financial Conduct Authority.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor, you should therefore not proceed. By proceeding, please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

Decline

12-05-2025 · Monthly outlook

Tariffs retaliation – the markets bite back

It’s been the expected explosive start to the second Trump presidency, but he will have been reminded of forces more powerful than presidential authority – the markets. And that could serve to neutralize the impact of tariffs and any trade war, says multi-asset investor Colin Graham.


    Authors

  • Colin Graham - Head of Multi Asset & Equity Solutions, Co-Head Investment Solutions

    Colin Graham

    Head of Multi Asset & Equity Solutions, Co-Head Investment Solutions

Summary

  1. Tariffs cause US equities, bonds and currency to fall at the same time

  2. Conversion of dollars held overseas into local assets more likely

  3. Investors will question the premium now needed to hold US assets

All the major asset classes tanked on the tariffs news, though the biggest shock came with a trillion-dollar sell-off in the US Treasury market – by far the largest bond market in the world. This move by the ‘bond vigilantes’ prompted the White House to water down or postpone much of the tariff plans.

And now the US economy itself is threatened by the self-defeating mantra of trying to correct trade imbalances with taxes on imports that will only dampen consumer demand and import inflation, says Graham, co-head of Robeco Investment Solutions.

The art of the deal?

“From our vantage point, President Trump is not following his own mantra of the art of the deal,” Graham says. “He blinked when the bond vigilantes emerged from hibernation, and is now folding as his bluff was called by friends and foes alike. The climbdown over tariffs will continue, but the negative macro impact on the US will start to emerge.”

“The consumer and manufacturing survey data has been poor, though the actual spending or labor data has yet to be affected. There is evidence that US consumers are pulling spending forward, and that companies have been stockpiling before the tariffs hit.”

“As a consequence of the tariffs, shipping volumes from China have ground to a halt. The most recent parallels can be drawn with the supply shock of the 2020 pandemic, as goods became scarce and inflation skyrocketed.”

Figure 1: Container ship volumes: shipments bound for the US from China have fallen off a cliff

Figure 1: Container ship volumes: shipments bound for the US from China have fallen off a cliff

Source: Robeco, Bloomberg

Upending the world order

The first major casualty of the new regime has been a significant weakening of the US dollar, and its role as the global reserve currency that is normally highly prized by foreigners. Its historic strength has largely allowed the US to fund its huge budget and trade deficits.

“Reversing this system could have dire consequences for the US and global economy,” Graham says. “Since the tariff announcements, the US economic outlook has been universally downgraded, coupled with everyone scrambling to understand the extreme policy uncertainty.”

“Non-US investors are now questioning the required risk premium for holding US assets. This is the USD 32 trillion question (the size of foreign portfolio holdings), which means the retaliation may come from different avenues.”

Reactions of asset classes

This retaliation has major implications for all asset classes, Graham says: “We came into the year with the dollar significantly overvalued compared to history as superior growth, higher interest rates and capital inflows drove it ever higher. Over the longer term, we expect a derating and rebalancing.”

“The downward pressure from a ‘buyer’s strike’ would be extended if investors do not allocate more assets to the US. Meanwhile, the repatriation of export proceeds from the US, allowing local currencies to appreciate against the dollar, means tariff policies are likely to continue to be watered down.”

“We have already seen central banks and individuals increasing dollar diversification through gold and other FX holdings. Going forward, we question whether US interest rate and growth rate dominance over the rest of the world will be enough to retain the attraction of US capital.”

“While the reduction of overweights to US assets by foreigners is a slow burn, this could speed up, as investors and corporates accelerate the de-dollarization process.”

Impact on Treasuries

The biggest impact may be seen in US Treasuries, USD 9 trillion of which are owned by overseas actors, including China. The so-called bond vigilantes have been dumping them on the open market, forcing yields up and values down.

Figure 2: Foreign ownership of US Treasuries is huge

Figure 2: Foreign ownership of US Treasuries is huge

Source: US Department of Treasury, Robeco

“A reduction in trade will provide less incentive to hold proceeds in dollars, and the conversion of dollars held overseas into local assets becomes more likely,” Graham says. “China has been increasing its pile of US Treasuries held in the Euroclear system, thereby making it easier to switch to European bonds and avoid driving the renminbi up against the greenback.”

“We remain neutral on the duration of Treasuries as the US economy remains robust, but will be looking to add to holdings if yields rise, because the inflationary impact of the goods shortage is not yet priced in, and the risk (term) premium for holding US Treasuries should be higher.”

Outlook for earnings and equities

There are also implications for equities, not least in how any remaining tariffs cut into company earnings, at a time when many investors believe that the tech-dominated US stock market is overvalued, even after the recent correction.

“Previously, non-US investors had a cushion against any risk-off move lower in equities from a rising US dollar,” Graham says. “In the latest equity sell-off, European investors were hit with the double whammy of declining US equity prices and a falling US dollar.”

“Toward the end of 2025, it will be clearer where the additional costs of tariffs will be borne. We expect to see the cost split between corporate margins and price increases for consumers. This will impact US equity multiples, which are already expensive, and keep consumer inflation sticky.”

Murky guidance

“In this state of the world, the outlook for employment and capital expenditure intentions will significantly impact investors’ expectations. Currently, US employment data is strong, while companies’ earnings guidance has become murky to non-existent.”

“We remain hyper-vigilant on the changing landscape, currently maintaining defensive positions in portfolios.”





Get the latest insights

Subscribe to our newsletter for investment updates and expert analysis.

Don’t miss out
Robeco

Robeco aims to enable its clients to achieve their financial and sustainability goals by providing superior investment returns and solutions.

Important information This disclaimer applies to any documents and the verbal or written comments of any person in presentations or webinars on this website and taken together is referred to herein as the “Information”. The services to which the Information relate are NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws and must not be relied or acted upon by any other persons. This Information does not constitute an offer to sell, or a solicitation of an offer to buy, any financial product, and may not be relied upon in connection with the purchase or sale of any financial product. You are cautioned against using this Information as the basis for making a decision to purchase any financial product. To the extent that you rely on the Information in connection with any investment decision, you do so at your own risk. The Information does not purport to be complete on any topic addressed. The Information may contain data or analysis prepared by third parties and no representation or warranty about the accuracy of such data or analysis is provided.
In all cases where historical performance is presented, please note that past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. Robeco Institutional Asset Management B.V. (“Robeco”) expressly prohibits any redistribution of the Information without the prior written consent of Robeco. The Information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to law, rule or regulation. Certain information contained in the Information includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results. Robeco Institutional Asset Management UK Limited (“RIAM UK”) is authorised and regulated by the Financial Conduct Authority. RIAM UK, 30 Fenchurch Street, Part Level 8, London EC3M 3BD (FCA Reference No:1007814). The company is registered in England and Wales under Ref No. 15362605.

In all cases where historical performance is presented, please note that past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. Robeco Institutional Asset Management B.V. (“Robeco”) expressly prohibits any redistribution of the Information without the prior written consent of Robeco. The Information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use is contrary to law, rule or regulation. Certain information contained in the Information includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results. Robeco Institutional Asset Management B.V. is authorised as a manager of UCITS and AIFs by the Netherlands Authority for the Financial Markets and subject to limited regulation in the UK by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.