Tariffs, Trade Tensions, and Your Portfolio: An Investor's Guide for 2026

Trade policy has re-emerged as a primary driver of market volatility and investment strategy. After decades in which globalisation was the dominant direction of travel — with barriers falling, supply chains lengthening, and specialisation increasing — the policy environment has shifted materially. US tariffs, bilateral trade disputes, and the deliberate reshaping of supply chains for strategic rather than purely economic reasons are all creating lasting structural changes that investors must account for.

The Current Tariff Landscape

The US has applied a broad range of tariffs on imports since the first Trump administration's Section 301 investigation into Chinese trade practices. These were maintained and expanded under subsequent administrations. By 2026, the US tariff regime encompasses:

• Broad tariffs on Chinese goods: covering electronics, industrial goods, steel, and aluminium at rates ranging from 7.5% to 25% or more on specific categories. Some categories have been further escalated.
• Section 232 tariffs: applied on national security grounds to steel and aluminium imports from most trading partners, though with country-specific exemptions and quotas.
• EU trade measures: intermittent disputes over subsidies (civil aviation, EVs from China) have resulted in additional measures.
• "Universal baseline tariffs": in 2025, broad baseline tariffs were applied to imports from most countries, representing a further departure from the liberal trade order of the WTO era.

The impact is not limited to the direct price effects: supply chain reconfiguration, investment pattern changes, and currency adjustments all have second and third-order effects.

Supply Chain Reshoring: Who Benefits

One of the most significant structural consequences of sustained tariffs is the economic incentive they create to shift manufacturing closer to the point of consumption — "reshoring" to the US, or "nearshoring" to Mexico and Central America for the North American market.

US industrial and manufacturing sectors have been among the beneficiaries: domestic steel producers, semiconductor fabs receiving subsidies under the CHIPS Act, and the broader US industrial sector (Caterpillar, Emerson Electric, Parker Hannifin, Rockwell Automation) have gained from policy tailwinds. US-listed infrastructure and industrials ETFs have reflected this.

Mexico: The USMCA (US-Mexico-Canada Agreement) has made Mexico the preferred nearshoring destination for companies restructuring supply chains away from Asia. Mexican manufacturing capacity — particularly in automotive, electronics, and aerospace — has expanded rapidly. The Mexican peso has benefited from capital inflows related to this trend, though with currency risk as a two-way proposition.

Eastern Europe: Similarly positioned for European reshoring. Poland, Romania, and Czech Republic have attracted manufacturing investment as European companies reduce exposure to long Asian supply chains.

Vietnam and India: As alternatives to China within Asia, both countries have attracted significant FDI from companies pursuing a "China Plus One" strategy. For investors, exposure to Vietnamese or Indian manufacturing-oriented equities captures some of this trend.

Currency Effects of Protectionism

Tariffs have predictable theoretical currency effects: they tend to appreciate the currency of the tariff-imposing country (reducing import volumes and improving the trade balance) and depreciate those of the targeted exporters.

In practice, the actual currency movements in 2025–2026 have been more complex:

• The US dollar initially strengthened on tariff announcements (safe-haven flows and trade balance expectations) but subsequently weakened as concerns about US fiscal sustainability, growth impact on domestic consumers, and retaliatory measures came into focus.
• Chinese renminbi: Subject to ongoing depreciation pressure from weak domestic demand and capital flows; managed within a band by the People's Bank of China.
• Emerging market currencies correlated with the dollar and commodity prices have shown significant volatility.

For internationally mobile investors with multi-currency portfolios, trade-driven currency moves present both risk and opportunity. Maintaining currency diversification across USD, EUR, GBP, and selective EM currencies is a practical hedge against any single-currency deterioration.

Sector Winners and Losers

Prolonged trade tensions and tariff regimes create clear sector-level consequences:

Likely winners:

• US domestic industrials: companies that produce in the US and sell in the US have a structural cost advantage when tariffs raise the cost of competing imports.
• Defence and security: geopolitical tensions that accompany trade disputes support defence spending; NATO member states are increasing defence budgets, and global defence primes benefit.
• Commodities and materials (domestically produced in the US or friendly nations): tariffs on steel, aluminium, and critical minerals effectively subsidise domestic producers.
• Nearshoring infrastructure (logistics, industrial property): the physical assets required to support new manufacturing locations.

Likely losers:

• Global consumer electronics supply chains: companies reliant on Chinese component supply face cost pressures and supply disruption.
• Luxury goods exporters to the US: European luxury brands (LVMH, Kering, Hermès) face tariff headwinds on US sales, their largest market.
• Emerging market export economies with high US sales concentration: countries whose economic model relies on exporting manufactured goods to the US are most exposed.
• Multinationals with complex global supply chains: administrative costs and supply chain restructuring costs reduce margins.

EM Export Economies at Risk

Specific EM countries deserve attention:

• South Korea and Taiwan have significant electronic goods exposure to US markets and to Chinese supply chains. Both face dual pressure from US tariffs on finished goods and from disruption to Chinese inputs.
• Cambodia, Bangladesh, and Sri Lanka: textiles-oriented export economies where the tariff rate hikes have been significant and where diversification options are limited.
• Germany: Not strictly EM, but Germany's export-oriented industrial economy — particularly automotive — is highly sensitive to both US tariffs on cars and vans, and to the structural shift toward EVs that may disadvantage German manufacturers in China.

Portfolio Response: Diversification and Positioning

For a diversified global portfolio, the investment response to sustained trade tensions involves:

1. Avoid excessive concentration in any single supply chain: portfolios heavily weighted toward China-dependent or US-export-oriented companies should be reviewed for cumulative exposure.
2. Review currency concentration: dollar weakening scenarios are plausible if trade deficits persist and fiscal concerns grow; maintaining Euro, GBP, and alternative currency holdings provides partial insulation.
3. Consider geographic rebalancing toward reshoring beneficiaries: US industrials, Mexico exposure, and selected Asian manufacturing alternative markets.
4. Monitor inflation effects: tariffs are inflationary — they raise the cost of imported goods. This has implications for central bank policy paths and for real asset allocation.
5. Maintain liquidity: trade policy can change rapidly and unexpectedly; portfolios should maintain sufficient liquidity to respond to opportunities or manage risk.

Long-Term Structural Shift

The consensus view among trade economists is that the liberal trade order is unlikely to be fully restored even if political conditions change. The trend toward supply chain resilience over efficiency, strategic industrial policy, and bilateral rather than multilateral trade arrangements represents a structural break with the post-1990 globalisation model.

This has genuine long-run implications for productivity (somewhat negative), inflation (somewhat positive), and for the competitive positions of different countries and sectors. Investment strategies built on the assumption that globalisation would continue indefinitely need updating.

How Global Investments Can Help

Assessing your portfolio's exposure to trade policy risks requires a detailed review of sector concentrations, geographic exposures, and supply chain dependencies across both equity and fixed income holdings. Our investment team works with clients to review these dimensions, model scenario outcomes, and position portfolios for resilience in a more fragmented trade environment. Investments can fall as well as rise; no allocation to specific sectors or geographies should be made without considering the full picture. Contact us for a portfolio assessment.