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Has the tariff pain peaked?
Key points:
- Tariff rates may have peaked, but uncertainty hasn’t: Markets may be breathing easier, but investors should not mistake easing conditions for resolution. Even if headline tariff rates stay put, the real risk lies in prolonged policy unpredictability. Negotiating meaningful deals under current tensions will be anything but straightforward.
- It's not just about tariffs: This round of trade talks goes far beyond tariffs — encompassing digital trade, industrial subsidies, and strategic sectors. With just weeks left before the current pause expires, these complex, structural demands are unlikely to be resolved by July 8.
- Time to reassess U.S. exposure: The U.S. may no longer serve as the stabilizing anchor it once was. With trade policy and geopolitics becoming a persistent source of volatility, investors need to evaluate whether their portfolios are overexposed to U.S.-centric risks — and consider strategic diversification.
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Why markets may be misreading the trade risks ahead
Markets have staged a notable recovery from the shockwaves of early April, when President Trump’s renewed tariff threats sparked a selloff. Financial conditions have eased, high-yield spreads have narrowed, and equity indices — led by U.S. tech — have clawed back losses. Some see this as a sign that the worst of the tariff pain may be behind us.
But the calm may be misleading.
While formal deadlines may shift, the direction of travel is clear: the U.S. is pursuing a sweeping reset of its trade relationships. July 8 is emerging as a critical test — that’s when the current 90-day pause on so-called “reciprocal” tariffs expires.
Without clear deals in place or a climbdown from the U.S., broad-based tariffs could snap back into force, with far-reaching implications for supply chains, inflation, and geopolitical alignment. Investors betting on a smooth resolution may be overestimating the room — and the time — for compromise.
Trade talks will be anything but simple
This time around, negotiations aren’t just about the size of the trade deficit. A comprehensive deal will require tackling the structural irritants that have accumulated over decades:
- Non-tariff barriers,
- Digital trade and data governance,
- IP protection and enforcement,
- Rules of origin, and
- Industrial subsidies in strategic sectors.
This is where the narrative of a swift resolution begins to break down.
Trade deals of this magnitude usually take years — not weeks – of negotiation, deep legal frameworks, and mutual compromise. While the U.S. may attempt to secure interim wins through MOUs (memoranda of understanding), such instruments are unlikely to satisfy key partners like China — especially where core strategic priorities are involved. Beijing is not expected to play along with superficial gestures. And with the U.S. floating demands across multiple fronts, time is rapidly running out.
What each country brings — or resists — to the table
Each country’s negotiation profile is unique, shaped by domestic priorities, political dynamics, and long-term strategy. The examples below highlight the breadth of issues at stake:
- China: The most geopolitically charged case. U.S. demands will likely focus on industrial subsidies, technology transfer, and semiconductor access. But these touch the heart of China’s innovation push — from AI and green tech to self-sufficiency in chips — and are unlikely to be up for negotiation.
- Europe: The EU is facing internal political shifts, with recent elections indicating a move towards the right. This political landscape may influence the bloc's trade negotiation stance. Additionally, the EU has expressed readiness to retaliate if necessary after three weeks of fruitless talks on getting a deal. The bloc has approved a package of 25% tariffs on EUR 21 billion worth of U.S. imports, set to take effect if negotiations fail. These include Harley-Davidson motorcycles, poultry and clothes, but the tariffs are on pause until July 14.
- Vietnam: A beneficiary of China+1 supply chain diversification, but now under pressure to tighten rules-of-origin enforcement, labor standards, and environmental compliance.
- Japan: Less contentious, but not friction-free. Currency policy, agricultural access, and coordination on U.S. Treasury holdings are likely sticking points.
Investor strategy: Don’t trade the noise — position for the shift
Even if we’ve seen peak tariffs, the deeper risk lies in a prolonged period of trade fragmentation and policy unpredictability. Investors should look beyond short-term relief rallies and ask: Is my portfolio still too concentrated in the U.S. market?
U.S. assets have long served as the default anchor of global portfolios — but in a world defined by regional blocs, political frictions, and supply chain realignment, that anchor may no longer offer the same security.
Key strategic themes that investors could consider for reallocation away from the U.S. include:
- European independence: With strong policy backing for energy security, defense spending, and industrial resilience, Europe is accelerating investment across infrastructure, automation, and clean tech. This is a structural, not cyclical, opportunity.
- China’s innovation: Despite geopolitical headwinds, China continues to pursue self-reliance in AI, semiconductors, and biotech. Backed by top-down policy and a maturing funding ecosystem, these sectors offer both valuation appeal and thematic diversification from U.S. tech.
Saxo offers curated shortlists aligned with both European independence and China innovation themes — helping investors position for the structural shifts shaping the next era of global trade.
That said, both themes carry risks.
- European assets may remain vulnerable to political fragmentation, implementation delays, and external demand shocks.
- Chinese innovation plays face ongoing geopolitical headwinds, regulatory scrutiny, and potential disruptions to global investor flows.
Still, in a world defined by policy divergence and economic realignment, exposure to these long-term themes can offer useful diversification, especially for investors looking to reduce U.S.-centric risk. While these opportunities won’t be without volatility, thoughtful allocation across Europe and China may help position portfolios for resilience as the global trade landscape evolves.