We’re already seeing what the impact of the Trump administration will have on global markets, even before he is sworn in for his second term on Monday. There is already a lot of discussion among fund managers and analysts about the likely impact his tariffs regime will have on US markets, but the devil will be in the detail.
“US equities are a whirlpool sucking assets away from other countries as market participants largely expect pro-growth policies in the US,” notes Vince Truong, a wealth manager based in the US with GSB. “This is one among other reasons why US equities outperformed last year, and especially post-election.”
Truong says the US Dollar is strengthening as assets move into the US and trade in the US. “It’s also in anticipation of potentially higher tariffs, leading to higher inflation, leading to higher interest rates and thus a strong dollar,” he explains. “So, the market is frontrunning these events.”
Higher tariffs: good or bad for US stocks?
For the US economy, in the near term, Trump’s policies on lower corporate and individual taxes is pro-growth and should strengthen companies and households, especially those with assets, provided that the tariff policies are not too jarring or disruptive.
“The impact of higher tariffs on the investment markets will depend on how gradual and surgical they are,” Truong says. “If they’re a sudden sledgehammer, that will have at least a short-term negative impact, likely causing a dip or correction (5-10% drop). But if they are surgical, measured and gradual, then the impact should be nominal. As we don’t know the nature of the tariffs it would be best to temper excitement during what will be a period of short-term volatility to better assess what actually gets enacted.”
While Trump’s agenda is rooted in addressing trade imbalances and protecting domestic industries — concerns that many view as valid — business leaders argue that tariffs are the wrong tool for the job. Instead, they are calling for collaborative, innovative solutions to create fair and sustainable global trade.
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President-elect Trump has repeatedly justified his tariff proposals as a means to protect American jobs, reduce the trade deficit, and revive domestic manufacturing. His plans include a sweeping 25% tariff on Chinese imports, targeting essential goods like electronics, industrial machinery, and consumer products to curb the trade imbalance with China.
Similarly, his 10% tariff on European auto imports is framed as a way to safeguard US auto workers and address what Trump perceives as an unfair advantage for European manufacturers. Additionally, he has proposed extending tariffs on industrial metals, such as steel and aluminium, which he argues are vital for national security and economic independence.
Trump has also threatened retaliatory tariffs against European nations that impose digital taxes on US tech companies, claiming such policies unfairly target American innovation.
While these policies align with Trump’s ‘America First’ agenda, some market analysts feel they are more likely to harm the global economy than protect domestic interests. Tariffs function as a tax on imports, raising costs for businesses and consumers while triggering retaliatory measures from trade partners.
These measures will hurt industries reliant on global supply chains and further inflame geopolitical tensions, all while pushing up inflation.
“Trump’s tariff strategy might resonate with domestic audiences, but the global economy doesn’t operate in a vacuum,” said Nigel Green, CEO of the DeVere wealth management group. “These policies risk triggering a trade war that would hurt everyone — especially the middle and working classes which Trump is claiming to protect.”
Is there a viable alternative to more US tariffs?
A modernized US-China trade agreement, for instance, could include enforceable commitments on intellectual property protections and market access. This would address Trump’s concerns without escalating tensions. But this would require China and the US to progress trade talks, which looks highly unlikely at the moment. Bear in mind that China also uses protectionist measures which it is unlikely to waive.
Rather than relying on tariffs, investing in innovation and workforce development is a more effective way to strengthen domestic industries. Research, development, and training programs for sectors like manufacturing and tech would position businesses to compete globally without disrupting trade flows.
Industries critical to the 21st-century economy, such as electric vehicles and renewable energy, could also be shielded from trade disputes. Tariffs on components like semiconductors or green technologies risk derailing progress in areas vital to global growth.
Tariffs could create a further inflation issue for the US
One of the most immediate risks of Trump’s tariff proposals is inflation. Tariffs increase the cost of imported goods, and businesses often pass those costs on to consumers.
A 25% tariff on Chinese imports would drive up the price of everyday items, from smartphones to clothing, directly impacting American households. Tariffs on industrial metals would increase production costs for manufacturers, slowing down production in critical sectors like automotive.
Meanwhile, retaliatory measures from trading partners such as the European Union and China could deepen the economic damage, disrupting supply chains and reducing market access for US exporters.
“It’s uncertain whether President-elect Donald Trump will follow through on his promise to impose 60% tariffs on Chinese goods,” said Victor Zhang, Chief Investment Officer at American Century Investments in Kansas City. “If he does, the effects will be unpredictable, Trump appears likely to impose tariffs on select goods from China, but his broader tariff strategy remains unclear. Furthermore, the impact on inflation may not be as dire as the market expects, given that some tariffs could restrict demand and slow down consumption.”
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