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Liberation day? The first views from our US fixed income desk
Following the much-hyped Liberation Day, Andrzej Skiba, Head of BlueBay US Fixed Income, gives his first thoughts on the implications of tariffs for economies and markets.
Key takeaways
- President Trump has announced reciprocal country tariffs, many of which exceeded market expectations.
- In our view, many investors were hoping for a much more benign outcome.
- Markets reacted negatively, as the last vestiges of trade war complacency were swept away.
- We should now expect an even greater upward pressure on inflation, possibly an uplift of more than 1.5%.
- While a trade escalation is clearly negative for growth, we do not believe a US recession is on the horizon.
We have held a view since the election that Trump is serious about tariffs and that market hopes of a piecemeal, inconsequential trade escalation were naive.
Trump’s tariffs: the details
Amongst major trade partners, we highlight EU (19% of US imports) at 20%, China (13% of US imports) at 34%, Japan (5% of US imports) at 24%, Taiwan (4% of US imports) at 32%, South Korea (4% of US imports) at 25%, India (3% of US imports) at 26%, and the UK (2% of US imports) at 10%.
25% foreign auto tariffs were also announced, although these are not on top of reciprocal tariffs.
Canada and Mexico were spared reciprocal tariffs, however they will be subject to previously announced 25% auto tariffs. These two countries represent about one-third of all US imports.
A "de minimis" exemption for low value imports from China was closed, while a number of goods categories were exempted from the tariffs: copper, pharmaceuticals, semiconductors, lumber, energy, and some minerals.
Asia fared the worst in this round of tariffs, while Latin America did comparably better, with Europe somewhere in between.
Our views
Overall, we calculate an average reciprocal tariff of less than 20% in yesterday’s announcements, helped by Canada and Mexico missing from the list and by having a number of exempted goods categories. While this is better than some feared (20% number was often mentioned in recent days), we believe that many investors were hoping for a much more benign outcome. This, in our view, explains the sharply negative stock market reaction as the last vestiges of trade war complacency were swept away.
Over the coming days, we expect retaliation tariffs to be announced by many countries/trading blocs, though at the same time, a range of concessions are likely to be presented. As previously mentioned, there is a good likelihood that some of the increases will be unwound as trading partners offer concessions, however, we expect the bulk of the increases to stay.
Tariffs are likely to be inflationary. We previously expected a 1% increase in headline CPI, assuming 10% average tariffs. With the final number likely higher, we should expect an even greater upward pressure on inflation, possibly in excess of 1.5%. This is likely to prevent the Fed from cutting rates over the coming months, even if the economy slows down.
While a trade escalation is clearly negative for growth (we see US growth moderating to 1.5% with some downside risks to this number), we do not believe a US recession is on the horizon, in the same way that we did not believe it would happen in 2022.
This time around the Fed is not hiking rates aggressively into a slowing economy. Worst case is a ‘higher for longer’ scenario rather than rate hikes (the bar for those is very high, in our view).
The outlook
We do not believe that markets can rebound aggressively after yesterday’s announcement, as trade-related headlines will keep pouring in over the coming weeks, and investors will likely worry about growth implications until hard data dispels some of these fears.
It is, however, perfectly plausible to see a partial reversal of recent price declines as market indicators point to exceedingly bearish short-term sentiment.
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This document is a marketing communication and it may be produced and issued by the following entities: in the European Economic Area (EEA), by BlueBay Funds Management Company S.A. (BBFM S.A.), which is regulated by the Commission de Surveillance du Secteur Financier (CSSF). In Germany, Italy, Spain and Netherlands the BBFM S.A is operating under a branch passport pursuant to the Undertakings for Collective Investment in Transferable Securities Directive (2009/65/EC) and the Alternative Investment Fund Managers Directive (2011/61/EU). In the United Kingdom (UK) by RBC Global Asset Management (UK) Limited (RBC GAM UK), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission (SEC) and a member of the National Futures Association (NFA) as authorised by the US Commodity Futures Trading Commission (CFTC). In Switzerland, by BlueBay Asset Management AG where the Representative and Paying Agent is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The place of performance is at the registered office of the Representative. The courts at the registered office of the Swiss representative or at the registered office or place of residence of the investor shall have jurisdiction pertaining to claims in connection with the offering and/or advertising of shares in Switzerland. The Prospectus, the Key Investor Information Documents (KIIDs), the Packaged Retail and Insurance-based Investment Products - Key Information Documents (PRIIPs KID), where applicable, the Articles of Incorporation and any other document required, such as the Annual and Semi-Annual Reports, may be obtained free of charge from the Representative in Switzerland. In Japan, by BlueBay Asset Management International Limited which is registered with the Kanto Local Finance Bureau of Ministry of Finance, Japan. In Asia, by RBC Global Asset Management (Asia) Limited, which is registered with the Securities and Futures Commission (SFC) in Hong Kong. In Australia, RBC GAM UK is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of financial services as it is regulated by the FCA under the laws of the UK which differ from Australian laws. In Canada, by RBC Global Asset Management Inc. (including PH&N Institutional) which is regulated by each provincial and territorial securities commission with which it is registered. RBC GAM UK is not registered under securities laws and is relying on the international dealer exemption under applicable provincial securities legislation, which permits RBC GAM UK to carry out certain specified dealer activities for those Canadian residents that qualify as "a Canadian permitted client”, as such term is defined under applicable securities legislation. In the United States, by RBC Global Asset Management (U.S.) Inc. ("RBC GAM-US"), an SEC registered investment adviser. The entities noted above are collectively referred to as “RBC BlueBay” within this document. The registrations and memberships noted should not be interpreted as an endorsement or approval of RBC BlueBay by the respective licensing or registering authorities. Not all products, services or investments described herein are available in all jurisdictions and some are available on a limited basis only, due to local regulatory and legal requirements.
This document is intended only for “Professional Clients” and “Eligible Counterparties” (as defined by the Markets in Financial Instruments Directive (“MiFID”) or the FCA); or in Switzerland for “Qualified Investors”, as defined in Article 10 of the Swiss Collective Investment Schemes Act and its implementing ordinance, or in the US by “Accredited Investors” (as defined in the Securities Act of 1933) or “Qualified Purchasers” (as defined in the Investment Company Act of 1940) as applicable and should not be relied upon by any other category of customer.
Unless otherwise stated, all data has been sourced by RBC BlueBay. To the best of RBC BlueBay’s knowledge and belief this document is true and accurate at the date hereof. RBC BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. Opinions and estimates constitute our judgment and are subject to change without notice. RBC BlueBay does not provide investment or other advice and nothing in this document constitutes any advice, nor should be interpreted as such. This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product in any jurisdiction and is for information purposes only.
No part of this document may be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose in any manner without the prior written permission of RBC BlueBay. Copyright 2025 © RBC BlueBay. RBC Global Asset Management (RBC GAM) is the asset management division of Royal Bank of Canada (RBC) which includes RBC Global Asset Management (U.S.) Inc. (RBC GAM-US), RBC Global Asset Management Inc., RBC Global Asset Management (UK) Limited and RBC Global Asset Management (Asia) Limited, which are separate, but affiliated corporate entities. ® / Registered trademark(s) of Royal Bank of Canada and BlueBay Asset Management (Services) Ltd. Used under licence. BlueBay Funds Management Company S.A., registered office 4, Boulevard Royal L-2449 Luxembourg, company registered in Luxembourg number B88445. RBC Global Asset Management (UK) Limited, registered office 100 Bishopsgate, London EC2N 4AA, registered in England and Wales number 03647343. All rights reserved.
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