The protectionist policies implemented by President Trump have had an immediate impact on markets upon their announcement. Most recently, when Trump declared that he would impose an additional 100% tariff on Chinese goods from November 1 in response to what he called “extraordinarily aggressive” new export curbs on China’s rare-earth industry, volatility spiked. You can also see it spiked after \u2018Liberation Day\u2019 earlier in the year.<\/p>\n
These are volatility levels not seen since the COVID lockdowns.<\/p>\n
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It\u2019s worth noting that when spikes of the magnitude experienced earlier this month occur, volatility rarely dissipates immediately; rather, it typically takes years for it to ease. This is because, while the outcome of the trade wars is not known, we do know that tariffs have the impact of raising prices, which in turn slows spending.<\/p>\n
In our last ViewPoint,\u00a0‘The Selective Path<\/a>,’\u00a0we explained that the evidence indicated the costs of the anti-China tariffs in the trade war during Trump\u2019s first Presidency were borne by US companies and US consumers (over 90%). And so far, at least, with the latest round of tariffs, the evidence is no different.<\/p>\n The other dynamic in the US is its labour force, and the numbers recently have not been strong.<\/p>\n An economic slowdown is predicted. What this means, we think, is that we are headed for a period of equity market volatility, as participants confront the impact of rising inflation and economic weakness.<\/p>\n The \u2018flight to quality\u2019<\/p>\n In the past, the quality factor has outperformed<\/a> during periods of heightened volatility and periods of stagflation.<\/p>\n You may have heard the phrase \u2018flight to quality\u2019. This occurs when market risks are pronounced and investors choose quality over non-quality assets to manage the storm. Over the past 30 years, you can see flights to quality in action. The index that VanEck MSCI International Quality ETF (QUAL<\/a>) tracks, the MSCI World ex Australia Quality Index, has been calculated by MSCI back to 1994, so its history includes the volatility spikes of dotcom, the GFC and the recent COVID crisis. In the chart below, when the light blue line is rising, quality has outperformed. You can see that in each of the previous times the volatility index (VIX) has spiked significantly, quality has outperformed. It has also outperformed since Liberation Day.<\/p>\n Source: VanEck Australia, Bloomberg. Performance in AUD, 1 Jan 2001 to 30 September 2025. Past performance is not a reliable indicator of future performance. Index performance is not illustrative of fund performance.<\/p>\n The market capitulations in 2000, 2008-2009 and 2020 were followed by economic slowdowns, with recessions following each of these stock market falls.<\/p>\n While not every pundit is calling a recession following Trump\u2019s tariffs announcements and subsequent 90-day reprieve, a slowdown may be the base case.<\/p>\n Source: Bloomberg, to 10 October 2025.<\/p>\n Historically, quality companies have lost less and recovered faster during periods associated with market falls and deteriorating economic conditions. In the table below, we have highlighted the dot-com bubble, GFC and the COVID-19 market meltdown. In all these episodes, quality international companies lost less and recovered faster. The table below compares the drawdowns of the MSCI World ex Australia Quality Index versus the market benchmark, MSCI World ex Australia Index.<\/p>\n Source: MSCI, VanEck, Morningstar Direct. Comparison of drawdown between the MSCI World ex Australia Quality Index (\u2018Quality Index\u2019) versus the MSCI World ex Australia Index (\u2018Benchmark\u2019). Maximum drawdown is the peak to trough decline from the start of the month specified to the recovery date, expressed as a percentage. The rate of recovery is the number of periods taken to recover from the trough to peak incline. You cannot invest in an index. Past performance is not a reliable indicator of future performance of the index or QUAL.<\/p>\n ETF<\/p>\n VanEck MSCI International Quality ETF (QUAL)<\/p>\n Global Shares<\/p>\n![\"Source:](\"https:\/\/www.europesays.com\/uk\/wp-content\/uploads\/2025\/10\/vaneck1.jpg\")
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