In recent days, after President Trump’s Liberation Day announcement in April 2025, trade tensions and tariffs have become significant factors influencing global markets. A trade war can have far-reaching consequences, affecting not only businesses but also individual investors. When uncertainty looms due to political and economic upheavals, many turn to “safe assets” to preserve their wealth and mitigate risks. In this article, we will explore the concept of safe assets, how a trade war can impact investments, and which financial strategies can help investors navigate turbulent times.

Understanding Safe Assets

Safe assets are financial instruments or investments that are considered low-risk, stable, and reliable during periods of economic uncertainty. These assets are typically not influenced by market volatility in the same way as stocks or high-risk investments. Instead, they offer investors a sense of security, especially when there is an economic crisis or a trade war.

Historically, safe assets have included government bonds, precious metals like gold, and high-quality currencies. These assets act as a hedge against financial instability, currency fluctuations, and inflation. During periods of heightened geopolitical risk, such as a trade war, investors tend to flock to safe assets to protect their wealth.

The Impact of a Trade War on Investments

A trade war typically involves the imposition of tariffs and other barriers between two or more countries, which can lead to a series of economic consequences. For investors, the effects of a trade war are multifaceted and can create significant market disruptions.

Economic Slowdown and Market Volatility

One of the primary outcomes of a trade war is an economic slowdown. As tariffs drive up the cost of imported goods, businesses face higher production costs, which can lead to lower profit margins. This, in turn, can cause stock prices to fall, particularly in industries reliant on international trade or supply chains.

Additionally, tariffs often trigger retaliation from other nations, leading to a cycle of escalating trade barriers. This unpredictability increases market volatility, making it difficult for investors to assess the true value of their portfolios. In such a scenario, many investors look for stable, less volatile assets to protect their capital.

Currency Depreciation

Another impact of a trade war is the potential for currency depreciation. As tariffs make exports more expensive and reduce demand for a country’s goods, its currency may weaken relative to others. This can affect foreign investments and lead to reduced purchasing power for international investors.

For example, if the U.S. and China engage in a trade war, the U.S. dollar or the Chinese yuan could depreciate significantly. This is particularly problematic for investors holding assets in the affected currency, as the value of their investments decreases.

Disrupted Supply Chains

In a trade war, global supply chains often experience disruptions as companies seek to avoid tariffs or find new sources for raw materials. These disruptions can lead to delays in production and delivery, resulting in reduced corporate earnings and slower economic growth. This can affect everything from consumer goods to industrial products.

Investors who are heavily exposed to companies with global supply chains may see their portfolios impacted by these disruptions. However, safe assets, such as government bonds or gold, typically experience less fluctuation during these times, providing a buffer for those looking to minimize risk.

Types of Safe Assets to Consider During a Trade War

As the economic effects of a trade war begin to unfold, investors may turn to various safe assets to hedge against the uncertainty. Below are some of the most popular safe assets to consider during periods of economic turbulence.

1. Government Bonds

Government bonds, especially those issued by stable countries like the U.S., Japan, and Germany, are considered one of the safest investments. These bonds are backed by the government, making them a reliable source of income. In the event of a trade war, when stock markets become volatile, investors often flock to bonds to preserve capital.

Bonds, particularly long-term U.S. Treasury bonds, are considered “safe-haven” assets. They offer a fixed return, regardless of market conditions, and are not correlated with the stock market. This makes them an excellent choice for investors looking for stability during a trade war.

2. Precious Metals (Gold and Silver)

Gold and other precious metals have long been regarded as safe assets in times of economic uncertainty. Gold, in particular, is known for its ability to retain value during periods of inflation, market turmoil, and political instability.

During a trade war, gold prices often rise as investors seek refuge from the instability caused by tariffs and trade disruptions. Similarly, silver, which is also considered a precious metal, can offer similar benefits. Both assets serve as a hedge against inflation and currency depreciation, making them ideal for a volatile global market.

3. High-Quality Currencies

Certain currencies, such as the U.S. dollar (USD) and Swiss franc (CHF), are known for their stability during times of crisis. These currencies are often referred to as “safe-haven” currencies, as they tend to appreciate when global uncertainty increases.

In a trade war, investors may seek to hold more USD or CHF to protect against potential currency depreciation. These currencies are generally less susceptible to the fluctuations caused by trade tariffs and offer investors a safe place to park their capital.

4. Defensive Stocks

Defensive stocks refer to shares of companies that provide essential goods and services, such as utilities, healthcare, and consumer staples. These sectors are less sensitive to economic cycles and tend to perform well even during times of market downturns.

During a trade war, when cyclical stocks (like those in the tech and automotive sectors) may face significant losses due to supply chain disruptions and declining demand, defensive stocks can offer a more stable return. These companies often have steady revenue streams, making them a safer bet during uncertain times.

5. Foreign Government Bonds

Investing in foreign government bonds can be another way to diversify risk during a trade war. By holding bonds from countries that are less impacted by the trade conflict, such as those in Europe or Asia, investors can reduce their exposure to the effects of tariffs and market volatility in their home country.

For Japanese investors, diversifying into U.S. or European government bonds may provide additional stability during a global trade war. These bonds offer a fixed return and are often less volatile than domestic equities, making them a safer option during turbulent times.

6. Diversified Exchange-Traded Funds (ETFs)

Diversification is one of the best ways to protect a portfolio during a trade war. By investing in ETFs that track a broad range of assets, such as bonds, commodities, and stocks from different regions, investors can reduce the risk of significant losses in one area of the market.

ETFs that focus on global markets or defensive sectors can help mitigate the impact of a trade war. These funds spread the risk across various asset classes, making them a smart choice for investors seeking to limit exposure to the effects of tariffs and trade disruptions.

How Safe Assets Help Investors Navigate a Trade War

When a trade war threatens to disrupt markets, safe assets serve several critical functions:

1. Protection Against Market Volatility: As global markets react to trade tensions, safe assets provide a hedge against the sharp price fluctuations seen in riskier investments. Government bonds, for example, can offer a steady income while stocks are in turmoil.

2. Currency Stabilization: Safe-haven currencies like the U.S. dollar and Swiss franc tend to perform well during a trade war, offering stability against currency depreciation. This helps investors maintain the value of their portfolios even if their domestic currency weakens.

3. Hedge Against Inflation: Precious metals, particularly gold, are a proven hedge against inflation. As tariffs increase the cost of goods and services, gold prices often rise, allowing investors to preserve their purchasing power.

4. Global Diversification: By holding assets in different regions or sectors, investors can shield themselves from the direct impact of a trade war. Foreign government bonds, for example, may provide stability when domestic markets are volatile.

5. Reduced Risk Exposure: Defensive stocks and bonds, being less sensitive to economic cycles, help reduce the overall risk in a portfolio. These investments typically provide steady returns, even in the face of economic disruptions caused by trade wars.

Conclusion

In a trade war, the economic landscape becomes unpredictable and volatile, making it essential for investors to focus on safe assets to protect their wealth. Government bonds, precious metals, high-quality currencies, and defensive stocks are all valuable tools for navigating the uncertainty caused by trade conflicts. Diversifying investments and holding assets that can weather financial storms is critical for maintaining a resilient portfolio. By taking proactive steps to allocate assets wisely, investors can mitigate the risks associated with trade wars and safeguard their financial future.