Insight Investment

In the event of a second Trump presidency, we believe all countries that are currently in a trade surplus with the US will be negatively impacted by the imposition of tariffs. However, we do not expect the US to apply tariffs on all countries at once.

We believe China will represent the primary target of any trade restrictions and be subject to higher tariffs than other countries. A second Trump administration will aim to prevent corporates circumventing tariffs by funnelling trade to China via third-party countries.

Canada and Mexico will fall under the protection of the United States-Mexico-Canada Agreement (USMCA) and may remain unaffected until the USMCA’s sunset clause timing triggers.

Several other US trading partners, including Vietnam, South Korea, India and Brazil could experience significant impacts if tariffs are applied widely.

Countries in Europe would likely see a reduction in trend growth of at least 0.2% per annum – a meaningful impact.

The markets are currently focused on inflation proving stickier than expected. If President Trump is re-elected and succeeds in lowering taxes and raising tariffs it is likely to increase inflation, although lower gasoline prices could cushion the impact.

These policies may prevent the Fed from easing or even result in higher rates if inflation meaningfully reaccelerated, which could provide another upward leg to the US dollar bull market.

However, a second Trump administration would likely pursue a weaker dollar and, depending on who Trump nominates as Treasury Secretary, a formal weak dollar policy is a real possibility.