How investors can win if Trump starts a trade tariff war

After the US elections comes the dawning reality of what Donald Trump’s promises will mean for the global economy. Last week, he fired the opening shots in the tariff battle plan he had pursued throughout his campaign, leading to predictions of tit-for-tat retaliation and higher inflation.

So far, it looks like Canada, Mexico and China will be hit the hardest, as the president-elect has said these countries will face higher import taxes than others, but experts say the tariffs will have a profound effect on many areas of the economy. global economy.

Niamh Brodie-Machura, co-chief investment officer at investment group Fidelity, says her team’s modeling suggests that even a partial implementation of Trump’s proposed tariffs would shave up to half a percentage point off the GDP of Germany and the eurozone, for example. Inflation caused by tariffs could even affect American companies that import raw materials.

For most investors who have a long-term strategy they are happy with, a wait-and-see approach may be best. But now may be a good time to apply the rule to your portfolio and consider how you could minimize the damage of a potential trade war.

And bold investors may even want to pick some funds and stocks that could benefit from the changes.

Trump’s tax attack and what it means

Tariffs are additional taxes on imports of foreign goods brought into a country, and Trump has said he wants to use them to hit specific governments in the hope that they will force change.

In addition to tariffs of 10 percent or more that would affect all goods exported from abroad to the United States, he wants to add an additional 25 percent tariff on goods exported from Canada, Mexico and China.

Trump’s tariffs may be bad news for those countries, but they are also worrying for some American industries. If American automakers import parts from Mexico, for example, they will also pay the tariffs, while other countries will likely respond with their own tariffs. This raises the price of goods for all consumers and creates inflation.

Lindsay James, investment strategist at wealth manager Quilter, says Trump will have to walk a tightrope with his tariff plan that will not disrupt the US stock market.

Countries and sectors to avoid

Many professional investors are already shifting their allocations to account for tariffs and focusing on sectors and regions that will benefit.

That means staying away from Canada, Mexico and China.

Jason Hollands, managing director of DIY fund group BestInvest, says the biggest threat is to China’s fragile economy “where authorities are desperate to boost growth”.

Europe is also likely to suffer from tariffs: a new study of fund managers by Quilter shows that 38 percent of fund managers believe Europe will see the worst stock market performance in 2025.

Edoardo Danieli, vice president of credit rating agency Morningstar DBRS, says some European sectors, such as pharmaceuticals and automotive, are highly exposed to tariffs.

So who will be the winners?

Not surprisingly, Quilter’s study showed that U.S. companies are expected to benefit the most from Trump’s plans, with nearly 40 percent of managers suggesting it will be the best-performing stock market in 2025. .

But American consumers may spend less if prices rise due to inflationary tariffs, so it will also be necessary to choose the right sectors.

Richard de Lisle heads the VT De Lisle America Fund and says the American industrial sector (including manufacturing and construction) will benefit, while consumer companies that matter will fare worse.

“A discount retailer, for example, that buys products from China may be uncompetitive,” he explains. ‘Who wins? All signs point to the US manufacturing sector being protected from foreign rivals.’

The sectors and funds to choose

Dan Coatsworth, investment analyst at DIY investment platform AJ Bell, suggests Artemis US Smaller Companies Fund for those who want to benefit from America’s domestic resurgence.

“Artemis US Smaller Companies’ biggest exposure is to industry sectors that could theoretically benefit,” he says.

Top holdings include US investment bank Jefferies and discount retailer Burlington Stores. The fund is up 19 percent this year and nearly 80 percent in five years.

BestInvest’s Hollands also advocates focusing on domestic-focused US stocks. His picks include Prime Minister Miton’s US Opportunities fund. It has increased 30 percent in three years and 94 percent in five.

For those who like to buy stocks, their choice is an American bank – JP Morgan Chase – to benefit from the prospect of deregulation in the financial sector.

Darius McDermott, CEO of investment platform Chelsea Financial, also picks on American small businesses. Choose T. Rowe Price US Smaller Companies Fund on the smaller end and Schroder US Mid Cap on the larger end.

The former has increased 21 percent in three years and 77 percent in five and has services and finance as its two strongest sectors; the latter has increased 26 percent in three years and 58 percent in five. Its strongest sectors are IT, industrial and financial.

For those looking for an individual stock, he believes Elon Musk’s Tesla, which is already up 88 percent in the last six months, could benefit greatly from the Trump administration.

McDermott says the automaker Musk founded will benefit from not having to deal with competition from China.

However you decide to invest during what could be a bitter trade war, prepare for a bumpy ride. The rest of the world is unlikely to sit still in the face of Trump’s actions, and the inflation and volatility it causes could be felt for many years.

Investors on both sides of the pond will need diversification, patience and strong nerves.

Useful stock identification codes:

Artemis Smaller US Companies BMMV576

Premier Miton US Opportunities B8278F5

T. Rowe Price US Smaller Companies Fund BD446P5

Schroder US B7LDLV Cap

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