Is it rhetoric or reality with US President Trump the second time around?

In the immediate aftermath of Trump sweeping back into power, markets were –unsurprisingly – volatile. But financial experts are generally cautioning against knee-jerk reactions, pointing out that savings and investments should be seen as long-term issues and not political pawns.In the coming weeks and months, there will be scrutiny of what President Trump plans to do in such areas as trade tariffs and fiscal policy.

Andrew Johnston, chief investment officer at investment management firm Aspen, says: “One of the most important areas that could affect economic growth in the UK and across the globe is President Trump’s tariff plans. He is currently aiming these more at countries like China, but that doesn’t mean others come out unscathed.“A major risk is that a tit-for-tat trade war is ignited, both as countries and regions respond directly to US tariffs but also between each other if, for example, China seeks to offload cheap exports into Europe instead.”

Johnston explains that this backdrop could both increase prices or inflation and negatively impact global trade, and therefore worldwide economic growth.

“There is a chance that his rhetoric so far has been designed to build up his pile of bargaining chips and that the reality will be more toned down, but it remains something to keep focused on in 2025,” he adds.

Eleanor Ingilby, head of high net worth at financial planners atomos, comments that President Trump’s statements can often be seen as “inflammatory”, but markets are learning not to react, viewing a lot of it as “noise”.

She says: “Indeed, there is a question over whether markets are starting to police Donald Trump’s soundbites. And, in time, they may simply get used to his rhetoric. That will be an interesting development to keep an eye on.“

The reality is that it will take time for President Trump’s real agenda to become clear. While we wait for that clarity, we are focused on five key areas when considering our exposure to the US – trade policy, tax and fiscal policy, immigration, regulation and geopolitics.”

On tariffs, Ingilby says there has been a lot of discussion, but very little detail on what might happen. She believes that, ultimately, it is likely to be tweaking at the edges and she would expect to see moderate tariffs imposed on China, Mexico and Europe. “With these things it is important not to position for a specific outcome when it comes to reviewing investment weightings,” she adds.

Geopolitics have had little impact on markets, according to Ingilby, with areas such as recession fears, or shifts in interest rate expectations, proving more important.“For now, markets are positive on Trump and there appears to be an understanding that he is pro-business,” she says. Therefore, atomos is looking for “resilient diversity” in its American holdings – exposure to the “magnificent seven technology giants”, while also making sure it has a variety of US exposure.

David Coombs, head of multi-asset investing at Rathbones Asset Management, points out that Trump’s electoral win triggered a surge in American stocks, bonds and currency as investors bought into the prospect for lower taxes, lessened regulation and a pro-growth agenda. This surge then moderated somewhat in the final days of 2024, probably because of people cashing in profits after another year of 25 per cent gains in US stocks, but also as inflation concerns rose to the fore once again and government bond yields rebounded sharply .

Coombs warns: “There’s a risk that Trump’s touted policies – big tariffs on trade, big tax cuts for households and businesses, and a clampdown on both legal and illegal immigration – will send inflation higher. However, we think people are putting too much weight on these areas and ignoring his ambitions on slashing government spending.

“Trump often talks big at the outset, only to negotiate a compromise at the end. To that end, some of the tariffs may be much smaller or not happen at all. Similarly, tax cuts may not be as large as some hope. But if he and Elon Musk’s Department of Government Efficiency manage to slash a significant amount of federal spending, the tax cuts’ net effect on inflation may be negligible.”

He explains that Scott Bessent, the US Treasury Secretary, has spoken of a “3-3-3” strategy – halving the federal budget deficit to 3 per cent of GDP by 2028; growing the economy by 3 per cent a year through deregulation and privatisation, and increasing US oil production by three million barrels a day.

Coombs adds: “Hitting these targets could be a tough ask, but the strategy seems positive for the US economy –a focus on growth, tighter finances, less bureaucracy, more private enterprise, and cheaper energy.

“We think US inflation is likely to remain in its current band between 2 per cent and 3 per cent. Not quite low enough for the central bank to claim victory and not high enough to cause serious panic – just constantlow-level anxiety throughout the year. But that would leave room for the Federal Reserve Bank to cut rates.”

Coombs thinks this sort of situation should allow a broadening of American stock market performance beyond the handful of massive technology firms at the top of the index. Solid economic growth, steadily falling rates, and a reduction in regulation should boost smaller US companies as well, he concludes.

Chetan Sehgal, portfolio manager at Templeton Emerging Markets Investment Trust (TEMIT), says: “There are a lot of concerns around how Trump’s Presidency will unfold, especially as the first two years of his term are expected to be extremely policy heavy, given a strong mandate and current control of both the House and Senate. This uncertainty, along with high interest rates in the UK, has contributed to a lower confidence in emerging markets.

Sehgal observes: “The market has seen some sell off, prompted by higher interest rates and the uncertainty on policy. However, emerging markets are set to bounce back and have already started to become more attractive to UK investors with a weakened pound sterling and high dividend and free cash flow yields in the asset class as well as low valuations.“

With an easing of geopolitical tension expected, 2025 is expected to offer greater stability and opportunity for the emerging markets sector.”

Ben Kumar, head of equity strategy at investment firm 7IM, examines what the impact of Trump’s tariff policy could be if he goes ahead with his plans.

Kumar says: “Arguably, the UK is in a better place than most of the world when it comes to US tariffs. Roughly two-thirds of UK exports to the US are services, rather than goods – so should be exempt. A 10 per cent tax on the remainder is a little tough to take, but it’d be worse if we were in Germany’s position – 15 per cent of all German car exports go to the US, and95 per cent of all exports to the US are goods.

“The problem is that the UK is already struggling on a number of fronts, although, again, compared to the big European economies, maybe not so bad. [There is] political uncertainty – not helped by Elon Musk – sluggish growth and a tricky inflation outlook. So anything else negative is just adding to the pile.”

Kumar’s snippet of hope is President Trump’s fondness for the UK, including Scotland, with his golf courses, and being the birth country of his mother, as well as the fact that it speaks the same language as the US.

“I’m not saying the special relationship still exists, just that we have a few things in our corner compared to other nations,” he adds.

Scott Douglas, director of capital markets at corporate finance firm Centrus, believes the UK Government’s National Insurance hike, Trump’s potential trade tariffs, and the weakening of sterling contributing to higher import costs are just a few of the factors adding pressure.

He says: “As inflation continues to run hot, the Bank of England will increasingly have to consider reversing rate cuts which would further hamper economic growth, which is already under heavy scrutiny by financial markets.

“Yields on UK Government bonds reaching record levels since 2008 demonstrates that the markets are losing faith in the UK economy. It’s crunch time for the Chancellor who needs to find a way to quickly raise growth, or else face further spending cuts and tax rises. Markets will be hawkishly watching inflation data and the Bank of England’s response, which will be key to determining the UK’s borrowing costs and fiscal capacity.”