Countries and Territories	Reciprocal Tariff, Adjusted
		China	34%
		European Union	20%
Vietnam	46%
Taiwan	32%
Japan	24%
India	27%
South Korea	26%
Thailand	36%
Switzerland	32%
Indonesia	32%
Malaysia	24%
Cambodia	49%
United Kingdom	10%*
South Africa	30%
Brazil	10%
Bangladesh	37%

Source: Annex I, White House Executive Orders, Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits. 4^th March 5.42pm local time. *Extracted from the chart where President Trump was holding during tariff announcement.

Brace for growth impact

The sheer scale and breadth of these tariffs will weigh heavily on U.S. economic growth—and by extension, global growth. To put the numbers into perspective, U.S. goods imports total approximately USD 3.3 trillion annually, with an average tariff of around 25%. This translates to an estimated tariff impact of USD 550 billion for the remainder of the year (USD 3.3 trillion × 25% × 8/12), equivalent to roughly 2% of U.S. GDP (USD 550 billion / USD 28 trillion).

U.S. companies will attempt to pass these higher costs onto consumers, effectively making tariffs a direct tax on spending. To put this into context, a tax hike of this magnitude—2% of GDP—is one of the largest imposed on U.S. consumers in recent history. While businesses may try to negotiate with suppliers to absorb some of the costs, the scale of these tariffs means that much of the burden will likely find its way on end consumers.

The key question remains whether the tariffs signal the end of globalisation or are simply a negotiating tool for President Trump. With other countries having more to lose in this new trade regime, he appears open to negotiation and leveraging his position. While Trump aims to close trade deficits, we don't see them as necessarily negative; they can indicate economic strength and overlook the fact that the U.S. is a major exporter of services.

Nevertheless, the economic impact could be cushioned by the current strength of the U.S. economy, which expanded at 2.3% in 4Q2024, with job growth averaging 150,000–250,000 per month. However, given the size and scope of these tariffs, recession risks have risen meaningfully. Should other countries retaliate with tariffs on U.S. goods, the drag on global growth could worsen.

Global markets have reacted negatively to the announcement, similar to the 2018 episode. The market was down c.-9% in February and c.-7% in March 2018, during Trump 1.0 when tariffs were introduced. With current tariffs at higher levels and a less supportive rate environment, the market's reaction reflects this, with a -12.2% decline from recent highs (see Figure 1).

Figure 1: US equities have corrected amidst policy uncertainty, and the episode is similar to Trade

Our strategy going forward

In our 2025 Outlook, we had highlighted a lower level of conviction compared to 2024—and so far, the year has proven to be considerably more challenging. Initially, we anticipated a slowdown in the U.S. economy in 2H2025. However, we revised this view last month, bringing forward the expected deceleration to 2Q2025, as rising policy uncertainty under Trump began weighing on economic activity.

Fixed Income: Turning More Constructive

Slower U.S. growth is likely to lead to a moderation in interest rates, which makes us more constructive on fixed income. Within regional fixed income, we now prefer government bonds and high-quality investment-grade credit. Over the coming months, we aim to gradually extend duration. We also maintain a positive view on Gulf Cooperation Council (GCC) bonds, given the region’s limited exposure to the tariff impact.

In Malaysia, our fixed income positioning is neutral to long duration, with a continued emphasis on high-quality credit issuers to enhance yield while managing risk.

Equities: Maintaining A Cautious Stance

The outlook on U.S. and Asian equities will be challenged in the near term. Our initial optimism that strong U.S. earnings momentum from 2024 would extend into the 2H2025 has since moderated. Within U.S. equities, the Magnificent 7 may face profit-taking as their earnings growth normalizes relative to the broader market. However, if the selloff deepens, we see selective opportunities in Communication Services (give its Services), where earnings growth remains resilient, reflected in our internal portfolios.

In Asia, we are focusing on domestic-oriented companies and countries more insulated from tariffs. We are currently favoring China and Singapore.

• China remains the world's largest exporter, but its exposure to the U.S. is now only about 2% of GDP. Domestic stimulus, through subsidies and rate cuts, appears to be gaining traction.
• Singaporean corporates, supported by strong cash flows and relatively low tariff exposure, present attractive defensive characteristics. In addition, the government’s healthy fiscal reserves provide a cushion against potential downside risks (see Figure 2).

Figure 2: Singapore could expand fiscal coffer to cushion economy downside risks,

Malaysia Equities: Balancing Caution with Selective Optimism

For Malaysia, a lower U.S. tariffs vis-à-vis ASEAN peers could help preserve export competitiveness. The country's diversified trade relationships, proactive policies, participation in regional trade agreements, and efforts to deepen intra-ASEAN trade may provide resilience against prolonged headwinds.

We are adopting a barbell strategy with a defensive tilt—favoring domestic-oriented themes and events—while selectively seeking value in oversold export-oriented names, especially in sectors less likely to face reciprocal tariffs. This is reflected in our Maybank Malaysia Value Fund.

Be defensive and patient

Investors should look past knee-jerk reactions. The tariff-driven selloff mirrors the 2018 market slump, when trade tensions and growth fears caused a sharp correction, only for markets to rebound after a partial trade truce and Fed rate cuts. Panic selling rarely pays off, as such dislocations often create long-term opportunities.

The shift in global trade also marks a broader move toward U.S. isolationism, reinforcing an increasingly polarized global landscape. Unlike the past two decades, when globalisation drove high correlations across markets, we may be entering a phase of financial desynchronization. In this environment, geographic diversification could play a more significant role in improving risk-adjusted returns as regional markets begin to move more independently.

We advocate a defensive and patient approach—balancing stability through mixed assets and fixed income while building into global equities for long-term growth. For investors who are fully invested, we encourage a medium to long term view. For investors who are not fully deployed, we think that some patience is required to allow for better visibility and certainty, which we will be monitoring closely.

Despite any changes in the structure of global trade, we still think that market leadership will be driven by companies benefitting from strong structural growth tailwinds, reflected in our Maybank Global Strategic Growth-I Fund.

A well-diversified portfolio remains the best tool for navigating uncertainty and capturing evolving opportunities.