Who is at risk from tariffs and what do they mean for equity markets?

Andrew Rymer

We look at which economies might face tariffs, the potential economic impact, and implications for equity markets.

There is a new sheriff in town. Global investors have been digesting the change in policy direction after President Trump’s return to the White House. In contrast to his first term, actions on the trade front have been a policy priority and the rules of the game are changing.

Within his first month back in office Trump has already announced 25% tariffs on goods imports from Mexico and Canada (subsequently delayed by one month); 10% tariffs on Chinese goods imports, in addition to the 25% tariff already in place on some goods; and a 25% tariff on all aluminium and steel imports. He has also directed his administration to draw up plans for reciprocal tariffs equivalent to those imposed by other countries on US goods.

Which countries might be in the firing line? How much does this matter for impacted economies, and what is the exposure for equity market investors?

Who is at risk of tariffs?

Trump has been unequivocal when it comes to trade, and his policy agenda prioritises tariffs as a tool to protect domestic industries and jobs. He has frequently cited trade imbalances as a key concern, both during his first term in office, and more recently. US trade deficits (where the value of imports exceeds exports) with partner countries therefore offer a proxy to gauge tariff risk.

Read more: Trump's on-off tariffs: the potential effects in the US and elsewhere

Trade deficits are just one yardstick with which Trump may measure trading relationships. He has previously cited currency manipulation, unfair domestic subsidies, as well as intellectual property theft among potential catalysts for action. With reciprocal tariffs being readied, the average effective tariff rate is another metric to consider.

Do tariffs matter to these economies?

For those exporting to the US, the key question is what proportion of GDP do exports to the US represent; this captures the economic impact. Mexico and Canada are the most impacted on this measure. Asian exporters, Taiwan and Thailand also have a sizeable exposure.

Click here to read more...