Rethinking your portfolio? The uncertainty is about more than a trade war.

President Donald Trump’s 90-day tariff pause offered a brief respite, but a looming trade war—and the principles behind it—still presents plenty of uncertainty for investors.

The details keep changing. The White House lifted the tariff rate on China to 145% from 125% on Wednesday, even as President Donald Trump paused “reciprocal tariffs" of up to 50% on 70-plus other countries. It is unclear how the White House will negotiate bespoke deals it highlighted with so many countries over three months.

Investors are sizing up Trump’s push to restructure both the domestic economy and the global world order—and how it should impact long-held assumptions. Markets have been on a roller coaster. The S&P 500 climbed 9.5% on Wednesday after the pause was announced, only to tumble 3.5% Thursday.

The market volatility is a byproduct of investors going through the three phases that comes with change—denial, anger and acceptance—and investors are just beginning to accept that the world is changing and that they should take Trump at his word, says Jawad Mian, founder of global macro advisory firm Stray Reflections.

White House has pitched global tariffs as a long-term tool to revitalize U.S. manufacturing jobs and raise revenue for tax cuts, as well as a cudgel for negotiations on non-trade matters. Right now, however the focus is on the epic trade battle between the world’s two biggest economies, the U.S. and China, and investors are trying to sort out what that means for their portfolios. Analysts are bracing for a wave of companies cutting or withdrawing their earnings guidance. The Budget Lab at Yale University estimates that Trump’s proposed tariffs in China and elsewhere would shave a percentage point off U.S. gross domestic product. Others estimate that U.S. tariffs would lower China’s GDP by two percentage points.

This might just be the beginning. Trump’s policies are a response to the angst in the U.S. about falling life expectancies, middle-income families’ economic struggles, stagnant real wages and broader inequality. Mian says it bears similarity to China’s emphasis on common prosperity that contributed to its decision to pop the property bubble in 2020 to make homes more affordable. China also launched an antimonopoly crackdown against internet giants like Alibaba and Tencent and targeted business leaders who had been enriched by China’s internet boom—measures that sent Chinese stocks and the economy into a multiyear rout.

“The next four years are about Main Street, not Wall Street—some version of China’s common prosperity with American characteristics" says Mian. Many of the proposals being floated by the Trump administration don’t bode well for the financial elite, profit margins or investor sentiment and confidence, he says.

Part of this shift—and underpinning trade policy—is a move toward economic nationalism. China wants Made in China products, India wants Made In India products, and now the U.S. is pushing for Made in America products. That hurts both Chinese exporters targeting the U.S., and U.S. companies that had seen China as a rapidly expanding market for their products.

“American companies won in the last decade from China’s market, generating tremendous profits. Isolating China on trade means that profit pool is at risk and most analysts aren’t discounting that," Mian adds.

That means a rethink of decades of corporate planning and billions of investment for globally connected supply chains. But it also means that the peace dividend the world enjoyed on the premise that countries that trade together are less likely to shoot at each other could be dissipating, says Cheryl Smith, economist and fund manager at Trillium Asset Management.

The prospects for increased economic fragmentation is pushing investors to rethink their hefty bets on the U.S., where markets until recently were lifted by Magnificent Seven technology stocks, stimulative monetary policy and a strong dollar. Foreigners own $19 trillion in U.S. stocks, about 20% of the total market capitalization, as well as $7 trillion in Treasuries and $5 trillion in other credit—30% of each of those asset classes, according to Apollo Global chief economist Torsten Sløk.

That is pushing some money managers to find new investing opportunities abroad. Europe has turned on its fiscal stimulus spigot in ways that could support the market there. Similarly, China will likely be forced to pick up its own stimulus to cushion the blow from the trade war, while countries like India and Brazil could be beneficiaries of the reordering.

U.S. Treasuries and the U.S. dollar have failed to serve their typical role as a haven when equities sink. That’s raised questions about whether investors are reassessing just how safe the U.S. is, especially as it stares down a budget deficit that could widen to $6 trillion.

In a note to clients, Gavekal Research co-founder Louis Gave described the changing views on the U.S. as more typical in emerging markets. “Did this come about because the U.S. is now overly dependent on foreign investors to fund its twin [budget and trade] deficits? Or because policymaking in the U.S. has started to look more like policymaking in an emerging market, with a powerful executive making arbitrary decisions in defiance of precedent? Whatever the reason, Wednesday’s U-turn on tariffs doesn’t change this new U.S. market backdrop."

China, for one, has already been diversifying its assets in recent years—opting not to reinvest its maturing U.S. Treasury bonds and allocating it to gold or other currencies, a trend analysts expect will continue. “If America was to escalate to a financial war—such as delisting of U.S.-listed Chinese companies or placing sanctions on Chinese or Hong Kong banks—then Treasury sales would likely occur and such selling could be rapid," says Rory Green, head of China research for TS Lombard.

This threat is a reason Rajiv Jain, chief investment officer of GQG Partners, isn’t that excited about China, even as he is finding more opportunities abroad and expects U.S. market multiples to fall. Jain sees China disadvantaged in the tariff battle, without a lot of cards to play in terms of retaliation, and he sees its efforts to ramp up fiscal stimulus as an indication of how bad the situation is.

Time to diversify.

Write to Reshma Kapadia at reshma.kapadia@barrons.com