Donald Trump’s second term as president brings with it new priorities and shifts in policy that may have significant implications for investors. The new administration looks to use tariffs as a key policy tool, using them to address issues such as reducing trade deficits and encouraging investments in U.S. manufacturing. The administration is expected to use tariffs to raise revenue and for leverage in negotiations that go beyond trade/investment.
The scope, implementation and duration of U.S. tariffs – and any retaliatory actions by other countries – remains highly uncertain. But there are some certainties, no matter the countries involved, products targeted or timing of tariffs:
- Firms with complex global supply chains, manufacturing abroad, and major exposure to revenue earning in the U.S. are the most vulnerable.
- We maintain our pro-risk stance in the U.S., as outlined in our 2025 Investment Directions, and believe there are opportunities today to take advantage of the resulting security dispersion and that it will be critical to ensure that portfolios appropriately diversified.
Tariffs signal global trade shift
Uncertainty around the scope and implementation of tariffs is high. What’s key for markets is how long they last: the longer they hold, the more permanent the supply chain shifts. Legal challenges could delay implementation and add to market volatility. How countries retaliate is also important – and could draw further U.S. escalation of tariffs. We believe that these actions, and their ripple effects, could dent corporate and investor confidence.
The broader implications could be larger than the direct effect, in our view. Prolonged tariffs as proposed, and how countries retaliate, could hurt growth and add to inflation, leaving the Federal Reserve limited flexibility in its policy rate decisions. In markets, we think U.S. equities could come under pressure in the next few months as investors seek additional compensation for these risks. More broadly, resilient economic growth, solid corporate earnings, potential deregulation, and the AI mega force keep us positive on a six- to 12-month tactical view. We feel that markets could eventually adjust to a new regime of tariffs if growth stays solid, and inflation contained.
Read more about how tariffs are signaling a shift in global trade here.
