Reciprocal Tariff Announcement - what does it mean for your pension?
US President Trump recently announced sweeping tariffs on goods from countries across the world. A universal 10% tariff will come into effect on April 5 2025, with higher rate tariffs on 57 countries becoming effective on April 9 2025.
What has happened?
On 2 April, President Trump held a press conference where he announced an executive order invoking a series of reciprocal tariffs on a number of trading partners globally.
Starting with a baseline tariff of 10% on all imports to the U.S., President Trump announced additional reciprocal tariffs on approximately 60 countries that have significant trade imbalances with the U.S. The U.S. administration views these tariffs as reciprocal because they are based on the tariffs imposed by these countries on U.S. goods. Specifically, the tariff for each country is calculated by taking the U.S. goods trade deficit with that country, dividing it by the total goods imported from that country, and then halving that amount.
China, the EU, Vietnam, Taiwan face some of the highest tariffs due to their significant trade deficits with the U.S. Additionally smaller economies such as Cambodia, Madagascar, Myanmar and Lesotho have also been subjected to substantial tariffs.
What has the market reaction been?
The market reaction has been negative. As of the time of writing, US Equities have dropped approximately 4%, while broader global equity markets are down by a smaller margin of about 1-3% with US 10-year yields falling nearly 20bps over the past trading day and are dropping below 4%. Shorter dated bond yields are declining more significantly than longer terms yields, leading to a modest steepening of the yield curve.
Markets are now anticipating a greater number of rate cuts by the Federal Reserve as a result of the growth shock these increased tariffs may impose on the US economy. Credit spreads are widening and the US dollar is weakening versus all major currencies, particularly versus the Swiss franc and the Japanese yen. Commodity markets are also not immune from these reverberations. Oil has dropped significantly, driven by weaker global growth prospects and an OPEC supply increase announced for May .Gold is holding relatively steady.
CIRT investment Adviser Mercer give their view - date 08/04/2025
While our expectations ahead of these announcements was for substantial tariffs to be introduced, these country-by-country tariffs are larger than many, including ourselves, expected. There are numerous estimates circulating around the effective average US tariff rates, ranging from 20% - 25% with some forecasting as high as 30%.
The tariffs act as a big fiscal tightening with the collected revenues leading to an improvement in the US fiscal deficit. There is considerable uncertainty as to how long these tariffs will last, how much of them will be negotiated and substantially lowered/eliminated. Our initial assessment is that should if these tariffs are implemented as planned and without significant fiscal stimulus—which appears unlikely in the near future we are of the view that they will cause a US recession in the near term.
However, it is worth noting that given these tariffs were higher than most people expected, there is room for positive surprises if they are negotiated away. Notwithstanding, the complex interplay of second order effects from these policies.
In summary, at the time of writing, latest developments have skewed global growth risks to the downside while increasing inflation risks.
What should I do when markets are volatile?
Individual circumstances differ, and it is advisable to seek investment guidance when appropriate. Unless you have approximately 7-10 years or less to retirement, your pension plan should be considered a long term investment.
Investment markets are very difficult to predict (i.e. when they might fall and by how much, when they will recover and by how much). Getting these decisions wrong can materially impact the size of your retirement account.
Instead, you should ensure that your investment choices align with your risk preferences, your personal circumstances, your objectives, and your time to retirement. As everyone's circumstances are different, we strongly advise you to contact a financial advisor for advice before making a decision.
This involves investing in growth-orientated funds when far from retirement, with the aim of growing your retirement account, and a progressive move into funds which match the types of benefits you expect to take at retirement over the last approximate 7-10 years before retirement.
The strategies which are expected to provide the highest return over the long term are also likely to experience the greatest fluctuations in returns over the short term. While short term market volatility may be unwelcome this should not be of significant concern to members far from retirement, as they have sufficient time to weather these short term market fluctuations.
For members closer to retirement (typically within approximately 7-10 years) the effect of these swings is more problematic as there may not be sufficient time for their savings to recover before retirement.
I am not close to retirement (approximately 7-10 years or more to retirement)
Pensions are a long term investment, so short-term market movements should not drive decision making. Switching to low risk / return funds in response to short term losses may lock in the reduced value of your retirement savings (i.e. you will have suffered the fall but won’t benefit from any subsequent recovery in your original fund).
Sticking with your original choice may give your savings time to recover. In particular, we note the following:
• If you chose to move strategies with a lower expected long term return (e.g. cash), you should also consider that you may need to save more for retirement in order to offset your reduced expected investment return.
• Similarly, you may be tempted to reduce your pension contributions in response to market volatility. Doing this will likely reduce your benefits at retirement and result in the need to save more to provide an adequate income at retirement.
I am close to retirement (approximately 7-10 years or less to retirement)
• Information on CIRT fund choices is available on this link
https://www.cirt.ie/investmentchoice/default.aspx
• As a general rule, it is considered best practice for members to move their retirement accounts gradually towards investments that match the type of benefits they may take at retirement in the last 7-10 years before retirement.
• Those expecting to take a substantial portion of their benefits as cash lump sums may wish to move a corresponding part of their retirement accounts gradually towards cash funds.
• Those expecting to use a substantial portion of their benefits to secure an income in retirement (an Annuity) may wish to move a corresponding part of their retirement accounts gradually towards bond funds which tend to move in line with the cost of buying an annuity.
• Those expecting to use a substantial portion of their benefits to keep investing post- retirement in an Approved Retirement Fund may wish to keep a corresponding part of their retirement accounts invested for growth.
• You should not need to worry if your retirement savings are invested in funds which match the benefits you expect to take at retirement as outlined above.
However, if your savings are not invested in funds which match the types of retirement benefits you expect to take and your savings have fallen in value, you may wish to consider the following actions:
• Getting financial advice on the options available to you, taking account of your personal circumstances.
• Increasing your pension contributions over the period remaining until your retirement to help build your savings back up.
Financial Advice
The CIRT Trustee preferred financial adviser is Milestone Advisory DAC. You can contact them or your own financial adviser to assist you as you approach retirement. You can contact Milestone Advisory DAC via the website (www.milestoneadvisory.ie), by post: Linden House, 4 Clonskeagh Square, Clonskeagh Road, Dublin 14, D14 FH90, by email ([email protected]), or by phone (01) 406 8020. Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.
Where can I find additional information
Information on CIRT monthly fund returns available on this link
https://www.cirt.ie/investmentchoice/FundReturn2024-2025/default.aspx
Information on CIRT fund choices available on this link
https://www.cirt.ie/investmentchoice/default.aspx
Monthly investment commentary from CIRT Investment Adviser – Mercer - available on this link
https://www.cirt.ie/investmentchoice/FundReturn2024-2025/default.aspx
If you have any further queries please contact the CIRT team on [email protected]