Trade tensions between major economies are nothing new, but when tariffs start flying, markets take notice – and so should UK savers and investors. If the US places higher tariffs on imports from China, the EU, or other key trading partners, the ripple effects of a global tariff war can spread far beyond those borders.

And let’s be honest, while most of us would rather not spend our free time worrying about trade policy, the impact on our savings and investments is hard to ignore.

So, what could a full-blown tariff war mean for your financial future? Let’s take a closer look.

Market Volatility – Hold On to Your Nerves

Stock markets hate uncertainty, and tariff wars create plenty of it. Every time a new tariff is announced, or another country retaliates, investors react. Share prices in affected sectors can swing wildly, sometimes within hours. If you’ve got money in the markets – whether through shares, pensions, or ISAs – expect a bumpier ride.

That’s not necessarily bad news for everyone. If you’re a long-term investor, volatility can create buying opportunities. But if you’re nearing retirement and need stability, it might be a good time to review how much risk you’re exposed to.

Inflation – Your Savings Could Lose Value

Tariffs make imported goods more expensive, which can push up inflation. If businesses have to pay more for raw materials or products from overseas, they’re likely to pass those costs onto consumers. That means your everyday spending – from food to electronics – could become pricier.

For savers, this is a real concern. Inflation erodes the value of your cash over time. Even if interest rates on savings accounts seem decent, they might not keep up with rising prices. Keeping an eye on inflation rates and considering options like inflation-linked investments could help protect your money.

Interest Rates – A Double-Edged Sword

The Bank of England closely watches inflation when setting interest rates. If tariffs push prices higher, the Bank might decide to raise rates to keep inflation in check.

For savers, this could mean better returns on cash accounts and fixed-rate bonds. But for borrowers – including mortgage holders – higher interest rates can mean bigger monthly repayments. If you’re on a variable or tracker mortgage, it’s worth considering how an interest rate hike might affect you.

On the flip side, if a tariff war triggers a slowdown in global growth, the Bank could go in the opposite direction and cut rates instead. That would be bad news for savers, as returns on savings accounts would shrink even further.

Sector Winners and Losers – Check Your Portfolio

Not all industries are affected in the same way. Sectors that rely heavily on global supply chains, such as manufacturing and technology, could face higher costs. If you’ve got investments in these areas, it’s worth reviewing how much exposure you have.

On the other hand, some businesses may benefit. UK firms that produce goods domestically and don’t rely much on imports might gain a competitive edge. Some investors look to defensive stocks – companies in sectors like utilities, healthcare, and consumer staples – which tend to be more resilient in uncertain times.

Currency Swings – A Risk and an Opportunity

Trade tensions can also affect currency values. If a tariff war escalates and investors lose confidence in the global economy, they may move money into “safe haven” currencies like the US dollar or Swiss franc. That could weaken the pound, making imported goods even more expensive.

For investors with international assets, currency fluctuations can either work for or against you. If you’ve got holdings in US or European stocks, a weaker pound could boost the value of your investments when converted back to sterling. But if you’re planning a holiday abroad, your spending money might not stretch as far.

What Should You Do?

So, should UK savers and investors be panicking? Not necessarily. While a tariff war can create economic turbulence, knee-jerk reactions often do more harm than good. Instead, consider these four simple steps:

1. Stay diversified – A well-balanced portfolio spreads risk and reduces exposure to any single sector or region.
2. Review your savings strategy – If inflation rises, look at options like inflation-linked bonds or stocks that historically keep up with rising prices.
3. Watch interest rates – If you have a mortgage, see if fixing your rate makes sense. If you’re a saver, keep an eye out for better interest deals.
4. Think long-term – Short-term market dips can be unsettling, but they often create buying opportunities. Staying the course usually pays off.

Trade wars might dominate headlines, but by keeping a cool head and making thoughtful financial choices, you can ride out the storm – and maybe even turn some of that volatility to your advantage.