Stocks, tariffs and pensions

BBC News

07-04-2025

Markets are reeling from US President Donald Trump's tariff announcements, but the American leader is standing by his decisions, defending his policies and saying "sometimes you have to take medicine to fix something". Experts answered some of the questions you sent us as the world tries to make sense of the turmoil and wonders how long it will continue.Read their answers below.
How does a stock market index work?
Simon Jack, the BBC's business editor, said the FTSE 100, which represents the 100 biggest companies publicly listed in the UK, were all "put in a big bucket back in 1984" and given a certain weighting in that bucket depending on how big those companies were. The stock market is a reflection of their total value over time. The bigger the company, the more weight it has in the index. For example, an AstraZeneca or an HSBC has more weight than others.It works the same in the US with the S&P500, which is made up of the 500 biggest companies, with an enormous concentration in some names like Apple, Nvidia and Amazon. The stock market tells you how the value of the shares in those companies has changed - with a focus on those biggest names.Generally speaking, it is an indication of what some of our biggest companies are worth, and when they go up or down, it tells you something about the sentiment of whether their profits are likely to rise or fall in the future.
How does a market downturn affect pensions and daily life?
Jack explains that what happens in stock markets is not necessarily the same thing that happens in the economy. They can be linked, but they are not exactly the same. Some people invest directly in shares - and this will definitely affect them. These are some big falls, some of the biggest we have seen in a couple days since pandemic panic gripped the markets back in 2020.The other way that people are exposed to these changes is through their pension funds. Pension fund investing is a long term game. Not all of your money will go into shares - some will go into government bonds, and the closer you get to retirement, the more weighting you will have in things like cash and government bonds, so the less this will affect you. There are two types of pensions: a defined benefit pension - where you get a promised percentage of your salary at retirement - and defined contribution - where your pension pots value will rise and fall with financial markets.Pensions are exposed right now, but pension investing is a long term game. The warning sign flashing here is not the value of your pension pot - it is what is going to happen to the economies in which we all live and work.A lot of people are saying the chance of recession in both the US, UK - and even globally - have gone up a notch, which has implications for things like jobs and wages.
How popular are tariffs in the US?
Bloomberg's politics editor Laura Davison said tariffs, both before last week's announcement and currently, are quite unpopular. The initial numbers for Trump on how he is handling the economy - what people think about his economic policies - are actually quite poor. This is sort of a surprising turn: one of the reasons that Trump beat Kamala Harris in the 2024 election is because voters were perturbed by high prices and what they perceived as a poor economy. But what may actually come to fruition in these tariffs is that prices may increase substantially for US consumers, as essentially all of these overseas goods become far more expensive to purchase.There could be inflation and we could also see an economic downturn, and potentially a recession.
How much of this is about China?
Some think that the whole exercise is about an economic proxy war with China and the entire game is about just trying to level that playing field a little bit, Jack said.But Trump is right in one regard, which is that American markets are much more open to foreign goods than a lot of foreign markets are open to US goods. The UK, for example, puts a 10% tariff on US imported cars, 14% on some kinds of beef, and 8% on other things. So there are barriers both ways. And while Trump says that other countries have been ripping off the US, it is American corporations that have reasonably pursued shareholder value by trying to put their production facilities in the strategically and economically best places.It is the head of American corporations who opened subsidiaries in Ireland, where there is a low tax rate, and put manufacturing in Vietnam or Cambodia. In a way this has been the sort of rational pursuit of maximum profit, a system which has made the US very rich indeed.China is getting very rich indeed as well, and it is certainly moving up the value chain. There is a feeling that the US was very comfortable when China was making cheap sneakers and t-shirts, but when China starts making supercomputers and missiles the US gets a little bit more concerned, and that is one of the reasons you are seeing some of these tensions come to the fore.
Will the markets recover?
That is really the unknown question right now, Davison said, but one thing we can expect is more volatility. We got a little bit of a sense of how markets react on Friday when Trump said he had spoken with Vietnamese officials and there was potentially a deal in the works for Vietnam. The country has been hit with a 46% tariff by the US, which is quite a significant level, and Vietnam has indicated that it could reduce to zero all its tariffs on US goods going into that country. Stocks like Nike and Lululemon actually increase on that news, because these are apparel companies that have a very big presence in Vietnam.Broadly, I believe we are going to see markets go down, but you could see particular stocks moving in a more positive direction as there are indications that there may be some exemptions allowed. We do not know what Trump will allow - he has sent some big signals at times saying that his policies will never change, but has also suggested that some deals are possible.