A round of tariffs announced by President Donald Trump has sent investors, asset managers and other stakeholders scrambling for how to respond to an ever-changing scenario facing global markets, however some experts believe these new levies might be a negotiating ploy.
Yung-Yu Ma, CIO at BMO Wealth Management, which has about $332.6 billion in assets under management, said the uncertainty surrounding these tariffs is “tremendous,” including worries that this may only be the tip of the iceberg and that there may be even more tariffs on the horizon.
Ma explained it’s likely these initial tariffs on Canada and Mexico are just a negotiating ploy as Trump establishes the bounds for a broader negotiation.
“The big worry for markets is that President Trump may be willing to let the U.S. take considerable economic pain in an attempt to achieve his stated goals of reducing trade deficits, bringing jobs to the U.S. and enhancing border security,” he added. “The Canada and Mexico tariffs also set the tone for the looming trade negotiations with China. China, for its part, seems likely to let Canada and Mexico take the lead in retaliation while it sits on the sidelines and strategizes for its eventual trade negotiation with the U.S.”
It's also very difficult to say whether these tariffs will be short-lived or if there is a scenario where a deal is struck that reduces the tariffs, Ma noted. “The markets may need to figure out a way to come to terms with a new tariff regime."
Over the weekend, Trump said he would implement a 25% tariff on imports from Canada and Mexico and a 10% tariff on imports from China, while energy imports from Canada will have a lower 10% tariff. A statement from the White House explained that this “bold action” is designed to hold Mexico, Canada, and China “accountable to their promises of halting illegal immigration and stopping poisonous fentanyl and other drugs from flowing into our country.”
In response, the Canadian government of Prime Minister Justin Trudeau quickly responded with retaliatory 25% tariffs on more than 1,200 U.S. import items that are expected to become effective on Feb. 4.
However, on the morning of Feb. 3, Mexican president Claudia Sheinbaum posted on X that Trump agreed to delay imposing the tariffs on Mexico for one month after she agreed to send 10,000 troops to the U.S.-Mexico border to prevent drug smuggling into the U.S.
Trump has also threatened to impose tariffs on the European Union.
Tony Rodriguez, head of fixed income strategy at Nuveen, said his baseline forecast had assumed marginal tariffs, mainly focused on China.
“The 25% tariffs announced on Canada and Mexico will have a larger impact than we previously expected, depending on their permanence and the outlook for additional, broader tariff measures moving forward,” he said.
“We expect these tariffs to exert a flattening influence on the yield curve and to put upward pressure on spreads. Front-end yields will likely move higher, to price in a more cautious Fed. If inflation moves back higher as a result of tariffs, the FOMC will be under much less pressure to cut (interest) rates and will likely delay any moves, possibly as far as into 2026.”
Nuveen has $1.3 trillion in AUM.
With respect to portfolio allocations, BMO's Ma said he wouldn’t be too eager to put the bulk of cash on the sidelines to work all at once.
“The reality of the economic disruption from the tariffs will quickly become apparent, and this is only round one of a trade war, so being ready for opportunities over the course of a few months is more advisable,” he said. “Be patient and opportunistic; there may be a time to be aggressive, but it is not upon us yet.”
The fear for markets is just how long this trade war could last, not only with Canada, Mexico and China, but also a possible looming tariff war on the EU.
However, Mary Ann Bartels, chief investment strategist at Sanctuary Wealth, with $48 billion in AUM, took a more sanguine stance.
“We do not believe tariffs and the short-term volatility they cause for markets are going to derail the market's bull trend, as the tariffs are more of a negotiation tactic to restrict illegal immigration across the U.S. border and to crack down on illegal exports of fentanyl into the U.S.,” she said.
Bartels added that any “tariff-driven market dips are opportunities for investors.”
Aimee Truesdale, an Edinburgh-based portfolio manager of the global emerging markets strategies team at Martin Currie, a unit of Franklin Templeton, said that overall she sees a risk that protectionist policies from the new U.S. administration could lead to elevated inflation, higher interest rates and a stronger dollar.
“We think the recently announced tariffs on Canada, Mexico and China support this view,” she added. “However, we caution there is lack of clarity on final outcomes, and there is still scope for things to change substantially from here.”
Truesdale further pointed out that as both China and Mexico produce a “wide range of goods that are essential to U.S. businesses and consumers,” she thinks that a “certain proportion” of this trade will continue regardless.
“We have already seen the impact of previous trade tariffs on China, with the country’s export numbers remaining robust despite this headwind, U.S. exports represent less than 3% of China’s GDP,” she added. “Things will be more difficult for Mexico, which sends more than three quarters of its exports to the U.S., although we believe this impact will be short-term and long-term solutions will be found."
Martin Currie has $17.9 billion in AUM.
Peter van der Welle, strategist and member of the sustainable multiasset team at Robeco, said that with markets now forced to second-guess Trump on further trade policy actions, U.S. trade policy uncertainty has reached the highest level in 40 years, except for summer 2019 when the U.S.-China trade war was at its peak.
“We expect market volatility to remain elevated near term in reflection of a significant risk of another high impact trade announcement towards China, Europe and/or Japan,” he said.
Robeco has $223 billion in AUM.
Jonathan Coleman, small-cap growth portfolio manager at Janus Henderson, cautioned that small-cap companies will not be immune to tariff impacts to the extent that they source products from Mexico, Canada or China.
“However, many smaller companies have diversified their supply chains over the last decade because of the first Trump Administration’s tariff policies as well as the increasingly higher cost of producing in China. Vietnam and certain Central American countries have become increasingly popular areas to produce goods,” he said. “Ultimately, sustained higher tariffs may provide a tailwind to domestic manufacturing which could disproportionately benefit small cap companies which are more tied to the domestic economy than are large caps.”
Janus Henderson has $378.7 billion in AUM.
