The tariff shock will initially inflict pain on emerging markets, though CIO believe its impact will vary significantly across regions. (斗牛棋牌在线)
Even if legal, business, and political pressures eventually push tariffs somewhat lower, the effective rate will likely remain at multi-decade highs, in our view.
A new world order?
If sustained, these policy shifts will accelerate a significant reorganization of global trade and financial flows. The US administration appears determined to reduce the country鈥榮 trade and current account deficits鈥攈allmarks of the US economy for decades.
Simply put, a country running a current account deficit spends more abroad (on imports, interest payments, dividends, etc.) than it earns from its international activities. Any entity spending beyond its means requires financing; in the US's case, this financing has come from foreign investors purchasing US assets.
Should the US successfully engineer this structural shift through tariffs and related policies, global trade flows would be redirected away from the US, accompanied by a corresponding shift in investment flows toward other jurisdictions.
Of course, such a transformation won鈥榯 occur overnight, and the transition period will undoubtedly present challenges for the global economy. Yet, this serves as another powerful reminder that portfolios can greatly benefit from maintaining a broad geographic and asset class footprint.
In our recent reports鈥 and 鈥攚e describe how investors can navigate the period of heightened uncertainty and elevated volatility that lies ahead of us, including an analysis of which S&P 500 levels would offer attractive risk-reward, how quality bonds provide respectable expected returns plus diversification benefits, and why gold remains an attractive hedge.
Uneven impact across emerging markets
The tariff shock will initially inflict pain on emerging markets, though we believe its impact will vary significantly across regions.
鈥淐hina+1鈥 is most affected
The recent US tariff announcements disproportionately target China and other Asian countries that have served as alternative manufacturing hubs in recent years鈥攁 strategy commonly known as 鈥淐hina+1.鈥
If these tariffs remain in place, Asian economic growth could decline by 1-2 percentage points, dropping below 4.0% (from 5.1% in 2024), driven primarily by a sharp slowdown in exports. Policymakers in the region are likely to respond proactively to mitigate the impact, and China鈥檚 end-April Politburo meeting will offer likely important guidance on the direction of policy easing.
In this context, we believe investors should adopt a selective approach toward Asian equities in the near term and remain cautious on the Chinese yuan (CNY).
Latin America is least affected
Notably, Mexico and Canada were the only two countries globally spared from additional tariffs on 2 April owing to the protections afforded by the USMCA, which covers a significant portion of their exports to the US.
Moreover, because the US enjoys trade surpluses with most major Latin American nations (excluding Mexico), the White House placed these countries in the lower, 10% tariff category鈥攋ust one-third of the rate imposed on emerging Asian economies and half of the rate applied to the European Union.
While there are no outright winners in a trade war, Latin America appears relatively insulated. Given the region鈥榮 inexpensive equity valuations, undemanding currency levels, and attractive interest rates, investors can find compelling opportunities to help navigate the ongoing global turmoil.
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