Global Investing Amidst U.S. Policy Uncertainty

May 23, 2025

To say the last 45 days have been volatile for markets would be a gross understatement. Yet, on May 16, the Dow erased its 2025 losses, and the S&P 500 saw its fifth straight day of gains. What’s an investor to do during this period of prolonged policy uncertainty? Will the impact on the confidence of foreign investors in the U.S. reduce demand for U.S. assets? For answers to these questions – and more – be sure to register for NCTR’s upcoming webinar on “Global Investing Amidst U.S. Policy Uncertainty” on May 28, 2025, at 2:00 p.m. (ET).

BlackRock, a valued NCTR Commercial Associate member, a member of NCTR’s Corporate Advisory Committee, and a participant on the upcoming webinar, has warned that U.S. tariffs may add to inflation, and overall ongoing policy uncertainty is raising the risk of a recession, weighing on corporate capital spending, and delaying longer-term commitments.

However, others tend to disagree. For example, MarketWatch reports that Steve Englander and Dan Pan, strategists with Standard Chartered – a British multinational bank with operations in wealth management, corporate and investment banking, and treasury services – have set forth “a data-driven argument making the case that much of the panic over trade might be exaggerated.”

For example, while data does show that the volume of container ships departing China for the U.S. has fallen by 50 percent since mid-April, simply looking at the absolute level of change “ignores a crucial piece of context, “ they argue, which is that “the activity level by mid-April was already pretty high” and that even after the drop, ”volume has remained consistent with activity seen during much of 2023.”

That is, tonnage that has been shipped to the U.S. from China so far this year is 40 percent higher than in 2023, and 9 percent higher than in 2024, largely due to the pre-tariff surge, they point out. Even if the pace of shipping from early May were to persist through June, Englander and Pan calculated that the cumulative amount shipped during the first half of 2025 would still be 18 percent higher than the first half of 2023, and only five percent lower than the first half of 2024.

Under this scenario, the two stress that such a decline in import volume would be equivalent to just 0.25 percent of GDP relative to 2023, and 0.5 percent relative to 2024.

While they agree there is “little precedent for this kind of tariff shock,” it is their judgement that the U.S. economy can handle it. “We agree that disruption is likely from tariffs and that any benefits are uncertain, but we don’t think that the U.S. economy will fall off a precipice because of a shock of this magnitude,” Englander and Pan say. Indeed, Englander told MarketWatch that, barring a serious trade-war escalation, the U.S. economy “shouldn’t experience too much blowback.”

What do others think? BUSINESS INSIDER, a New York City–based multinational financial and business news website, recently gathered what “some of Wall Street’s top commentators” had to say as US-China trade tensions cool:

Barclays.While the economy will likely slow in the coming quarters, the bank expects GDP to grow 0.5 percent year-over-year by the fourth quarter of 2025 and grow by 1.5 percent year-over-year in the fourth quarter of 2026. “We think these lower tariff rates on China will be considerably less disruptive for domestic activity, labor markets, and less inflationary, than prior rates,” a Barclay’s note explained.
Allianz.Mohamed El-Erian, Allianz’s chief economic advisor, said the trade deal isn’t signaling an all clear for markets. He said one reason is because tariffs will still “stoke inflationary pressures in the economy, even though a lower rate on imports will allow for some economic activity between the US and China.” He said economic activity would likely be higher than expected for the next 90 days because of short-term optimism on the trade agreement. “My own gut feeling is we will get some slowing in the economy. We will get some higher inflation. But most CEOs will remain in the wait-and-see,” he said, adding that there was still uncertainty around the economic, political, and national security implications of the deal.
Apollo. Torsten Sløk, chief economist at Apollo, is reported to have said the trade agreement could easily boost the U.S. economy’s growth by removing a “major tail risk.” He is quoted as saying “it’s very clear that by removing this tail risk and the risk of a recession, we now have the markets saying, ‘Well, maybe the growth outlook is not that bad.’ And maybe therefore, yes, inflation will still go up, but if we still have that GDP growth is going to be still OK, at least for now.” However, Sløk also cautioned that rebuilding confidence in the US could take time.
Morgan Stanley. Mike Wilson, chief investment officer, said he believed stocks had already hit a “trough” after President Donald Trump’s “Liberation Day” tariffs fueled a historic sell-off, and that the S&P 500 would reach 6,500 by the end of the year. Reduced tariffs could also give the Fed more room to cut interest rates this year, Wilson was quoted as saying, which could “boost risk assets like stocks.” And he said the risk of a recession had also “come down meaningfully,” assuming that negotiations with China are successful. That, along with a weaker U.S. dollar, brightens the outlook for corporate earnings. “I feel better that the second half now, from a rated change standpoint, can be better than what people were expecting because the first half was actually worse than what people were expecting,” Wilson said
Evermore. Roger Altman, Evercore’s founder, said the main issue with the trade deal is that the terms are not final yet. “It’s encouraging. It’s very encouraging. But it’s preliminary,” Altman told CNBC. “It’s essentially a 90-day pause on the ultrahigh tariffs in order to negotiate to try to get a permanent framework, permanent tariff reduction framework, and other progress.” Meanwhile, as the overall U.S. tariff rate is still sharply higher than it was before Trump’s April 2 tariff announcement, and the overall rate will likely be pushed up to about 14 percent, Altman estimates, up from about three to four percent during then-President Joe Biden’s term. “That will still be a drag, when we all know what tariffs do,” he said. “As Chairman Powell said, they raise prices, reduce consumption, raise inflation.”
Yardeni Research. Ed Yardeni, president, said he thought Trump faces mounting pressure to ease trade tensions ahead of midterm elections next year, and Chinese President Xi Jinping has his own incentives to strike a deal, including efforts to halt a deflationary spiral in China’s economy, Yardeni wrote. Yardeni therefore lowered his estimate for the odds of a US recession from 35 percent to 25 percent, and said he now sees the S&P 500 reaching 6,500 by the end of 2025.
ING. While the easing of US-China trade tensions benefits both sides, it also means that China retains its cost advantage in manufacturing, said James Knightley, the chief international economist at ING. With tariffs scaled back to around three percent, he said “most production remains cheaper in China than relocating it to the US.” Lower tariffs also reduce the trade revenue Trump had hoped to collect. “Nonetheless, it de-escalates economic tensions and provides a boost to risk sentiment, which can help ease headwinds facing the US economy,” Knightley also pointed out.
Deutsche Bank. Jim Reid, head of global macro and thematic research at Deutsche Bank, is reported to have said in a note that the “dramatic reduction in tariffs is only a temporary one for 90 days, but as far as markets are concerned, there’s now a belief that the worst of the trade war has passed, and that the trend is now towards de-escalation.” He warned that “There’s little doubt about how positive this news is, but the US is not out of the woods yet.”
Larry Summers, former US Treasury Secretary. In a post on X, Larry Summers, President Emeritus at Harvard University, is reported to have said that between Beijing and Washington, the U.S. blinked, not China. “China didn’t make any consequential or significant change in its policies,” he noted, observing that “Sometimes it’s good to blink. When you make a mistake, it’s usually best to correct it and retreat, even if it’s a little bit embarrassing.”
Rosenberg Research & Associates. David Rosenberg, founder and president of Rosenberg Research & Associates, said Trump “has convinced everyone that a 30 percent tariff rate on China, and a 13 percent average tariff rate on the world (it was 2.5% in 2024), are both normal and manageable,” Rosenberg wrote in a post on X. “Nothing like a 10-percentage point levy on this $30 trillion beast called Global Trade.”

In any case, Reuters reports U.S. Treasury Secretary Scott Bessent has acknowledged it will take years to reset Washington’s’ trade relationship with Beijing.

But tariffs are not the whole story. In the early hours of May 22, the House of Representatives passed its version of a budget reconciliation bill by one vote, 215 to 214. No Democrats supported the measure, while two Republicans — Thomas Massie of Kentucky and Warren Davidson of Ohio – opposed it.

Before a 42-page manager’s amendment, released just hours before the final vote was added to the overall measure, the Congressional Budget Office (CBO) found that, without accounting for interactions among the titles within the bill — and this manager’s amendment – the bill would add $2.3 trillion to deficits over the next decade. According to reporting by Roll Call, the overall bill will now seek to cut federal spending by about $1.7 trillion over 10 years, particularly through curbs on Medicaid and food stamps, while offering about $4 trillion in new and extended tax cuts.

In a nutshell, the legislation would make permanent the 2017 tax cuts; create new tax breaks such as exempting tips from taxes; cut federal spending by at least $1.5 trillion over 10 years; increase defense and border security spending by $300 billion; and raise the current $36.1 trillion debt ceiling by at least $4 trillion.

Republican supporters say that robust economic growth would provide about $2.5 trillion in new revenue to avoid spiking the deficit, but Roll Call noted that deficit concerns “clearly rippled through financial markets on Wednesday,” with Treasury bond yields rising “as investors dumped their holdings in the morning “ and an afternoon auction of 20-year Treasury debt “saw weak demand, sparking a new round of selling,” with stock prices “declining sharply as investors sold riskier assets.”

“We’re not rearranging deck chairs on the Titanic tonight. We’re putting coal in the boiler and setting a course for the iceberg,” Congressman Massie said, summing up the situation.

Roll Call also underscored that “the fate of the bill is hardly secure,” noting that the budget reconciliation package now goes to the Senate, “where Republicans have already made clear they intend to rewrite the measure.” Once again, investors are assessing the risks and opportunities for the economy and markets – and trying to decipher the impacts as the legislation continues its uncertain progress through the Congress. Here is what J.P. Morgan, for one, thinks:

For the economy: The fiscal stimulus portion of the proposed bill (extension of tax cuts, new tax cuts and spending increases) could offset two-thirds of the negative tariff impact.
On financial markets: It is likely the proposed bill increases fiscal deficits and as a result, puts upward pressure on Treasury yields in the U.S., creating uncertainty and higher yields (term premium) at the longer end of the Treasury curve.
Within fixed income: “We have confidence that the next move the Federal Reserve makes is a cut rather than a hike.”
As for equities: Increasing the fiscal stimulus in the U.S. could be “a tailwind for stocks.”
Infrastructure investment: “For investors looking to avoid rate volatility that can arise amid higher fiscal deficits, we think infrastructure can add resilience to portfolios,” offering diversification and consistency and “providing essential services with high barriers to entry and long-term contracts that include inflation escalators,” J.P. Morgan believes.

Finally, there are what BlackRock refers to in its “BlackRock Weekly Commentary for May 12, 2025” as “Mega forces,” which it defines as “big, structural changes that affect investing now – and far in the future” – changing the long-term growth and inflation outlook and creating major shifts in profitability across economies and sectors while also presenting major opportunities – and risks – for investors. These include:

Demographic divergence: “The world is split between aging advanced economies and younger emerging markets.” What are the implications?
Digital disruption and artificial intelligence (AI).
Geopolitical fragmentation and economic competition: “Globalization is being rewired as the world splits into competing blocs.”
Future of finance: “A fast-evolving financial architecture is changing how households and companies use cash, borrow, transact and seek returns.”
Transition to a low-carbon economy: “The transition is set to spur a massive capital reallocation as energy systems are rewired,” BlackRock stresses.

Much is at play as investors attempt to navigate rough and unpredictable seas. Many of the challenges are associated with U.S. policy uncertainty, and not only with regard to tariffs. But there are also other factors at play. To help understand what these are, and how public pension plans can best weather the storm, be sure to attend the upcoming NCTR Members-only webinar. Panelists include:

Mark Hughes, Senior Managing Director and Co-Head of emerging market debt and portfolio manager, PPM America;
Michael Pyle, Managing Director, Deputy Head of the Portfolio Management Group, BlackRock;
Orray Taft, Managing Principal/Consultant and Risk Manager for Meketa’s Outsourced Chief Investment Officer (OCIO) group; and
Dale West, Senior Managing Director of Public Markets with the Teacher Retirement System of Texas.

Don’t you want to know what these experts think? Register now!