How traders could make hay if Trump begins a commerce tariff struggle

After the US election 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 trade tariff battle plan he had trailed throughout his campaign, leading to predictions of tit-for-tat retaliation and higher inflation. So far it appears that Canada, Mexico and China will bear the brunt as the President-elect has said these countries will face higher import taxes than others, but experts say tariffs will have a profound effect on many areas of the global economy.

Niamh Brodie-Machura, co-chief investment officer at investment group Fidelity says that her team’s modelling suggests that even a partial implementation of the tariffs floated by Trump would knock as much as half a percentage point off German and Eurozone GDP, for example. Inflation caused by tariffs might even affect US companies that import raw materials.

For most investors who have a long-term strategy in place that they are happy with, a wait and see approach may be best. But now may be a good moment to run the rule over your portfolio to consider how you could minimise damage from a potential trade war.

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

Trump’s tax attack and what it means

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

As well as tariffs of 10 per cent or more that would hit all goods exported from overseas to the US, he wants to add an extra 25 per cent tariff for goods exported from Canada, Mexico, and China.

Trump’s tariffs may be bad news for those countries, but they are also concerning for some US industries. If US car manufacturers import parts from Mexico, for example, they will also pay the tariffs, while other countries are likely to respond with tariffs of their own. This pushes up 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 won’t upset the US stock market.

The countries and sectors to avoid

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

That means steering clear of Canada, Mexico, and China.

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

Europe is also likely to suffer from tariffs, with a new study of fund managers by Quilter showing that 38 per cent of fund managers think Europe will see the worst stock market performance in 2025.

Edoardo Danieli, vice president of credit ratings agency Morningstar DBRS says some European sectors such as pharmaceutical and auto businesses are highly exposed to the tariffs.

So who will be the winners?

Not surprisingly, the Quilter study showed that US business is the biggest expected beneficiary from Trump’s plans, as nearly 40 per cent of managers suggest it will be the best performing stock market in 2025.

But US consumers may spend less if prices rise due to inflationary tariffs, so you will need to pick the right sectors too.

Richard de Lisle runs the VT De Lisle America Fund and says the US industrial sector (including manufacturing, and construction) will benefit, while consumer businesses that import will fare worse.

‘A discount retailer, for example, buying goods from China may be uncompetitive,’ he explains. ‘Who wins? All signs point to the US industrial sector protected from foreign rivals.’

The sectors and funds to pick

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

‘Artemis US Smaller Companies’ biggest exposure is to industrials which could in theory benefit,’ he says.

Top holdings include US investment bank Jefferies and discount retailer Burlington Stores. The fund is up 19 per cent this year and almost 80 per cent over five years.

Hollands, at BestInvest, also advocates targeting domestically focused US stocks. His picks include Premier Miton’s US Opportunities fund. It is up 30 per cent over three years and 94 per cent over five.

For those who like to buy shares instead, his pick is a US bank – JP Morgan Chase – to benefit from the prospect of deregulation in the financial sector.

Darius McDermott managing director of investment platform Chelsea Financial also chooses US small companies. He picks T. Rowe Price US Smaller Companies Fund at the smaller end and Schroder US Mid Cap at the larger.

The former is up 21 per cent over three years and 77 per cent over five and has services and financials as its two strongest sectors, the latter is up 26 per cent over three years and 58 per cent over five. Its strongest sectors are IT, industrials, and financials.

For those looking for an individual stock, he believes that Elon Musk’s Tesla – already up 88 per cent in the past six months, could benefit hugely from the Trump administration.

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

However you choose to invest during what could be a bitter trade war, be prepared for a bumpy ride. The rest of the world is unlikely to take Trump’s actions lying down, and the inflation and volatility it causes could be felt for many years.

Diversification, patience, and strong nerves will be needed for investors on both sides of the pond.

Useful stock market identification codes: 

Artemis US Smaller Companies BMMV576

Premier Miton US Opportunities B8278F5

T. Rowe Price US Smaller Companies Fund BD446P5

Schroder US Mid Cap B7LDLV

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