Trump vs China, Canada, Mexico and the EU: what equity investment strategy, and which portfolio?

The imposition of new tariffs by Trump on China, Canada, Mexico and Europe is creating uncertainty in the markets, but at the same time opening up opportunities for targeted investment strategies.

The recent tariff measures introduced by President Donald Trump are raising significant concerns about their impact on the global economy. According to The Times, the imposition of tariffs of 25% on imports from Canada and Mexico, and 10% on Chinese goods, could have effects comparable to the economic disruption caused by the COVID-19 pandemic.

These protectionist policies risk triggering trade wars, with potentially severe economic consequences for all parties involved, particularly for the economies of Canada and Mexico, which are heavily dependent on the United States. Some economists forecast possible recessions in these countries if the 25% tariffs were to persist. The European Union could also be drawn into this tariff escalation, with possible repercussions for its exports to the United States. Sectors such as automotive, electronics and fashion could be particularly hard hit, with an estimated impact of $102 billion for the EU alone. Therefore, also in light of the far from reassuring statements made by the US president, investors and savers should update their strategic asset allocation and reposition their investment portfolios so as to minimise damage or profit from the opportunities that such a scenario nonetheless presents. In strategic terms, first of all, here are some possible decisions to adopt for equity portfolios.

1. Invest in sectors resilient to tariffs. Some sectors tend to be less affected by, or even benefit from, trade tensions, such as Technology. Companies such as Microsoft, Amazon and Google (Alphabet), which provide digital and cloud services, are in fact less exposed to tariffs on physical goods. The same applies to the healthcare/pharmaceutical sector, where companies such as Pfizer, Johnson & Johnson and Eli Lilly sell globally and operate in a market less affected by tariffs; as well as the non-cyclical consumer goods sector, which produces essential goods (e.g. Procter & Gamble, Coca-Cola or Walmart).

2. Focus on companies with localized supply chains. Companies that produce mainly in the United States and rely less on imports (for example, some businesses in manufacturing or defence) could benefit from a protectionist environment.
3. Invest in companies that benefit from import substitution. If some imported goods become more expensive because of tariffs, domestic companies offering alternatives could gain. In the agricultural and food sector, for example, if tariffs affect foreign food products, US agricultural producers could increase sales and margins. In Automotive, some carmakers could benefit from stronger domestic demand if imports are penalised.

4. Focus on safe-haven assets in periods of uncertainty. In the Gold and precious metals sectors in general, mining companies such as Barrick Gold or Newmont Mining tend to gain when there is economic uncertainty. Utilities and infrastructure are also considered “defensive” sectors and less tied to economic cycles.
5. Global diversification to reduce risk. If tariffs hit the US market, diversifying by investing in emerging markets or in economies less involved in the trade war may be a good choice.

With regard to exclusively equity investment portfolios - or the equity portion of an overall securities portfolio that also includes money market/bond instruments - it is essential to implement different strategies depending on the risk level and the time horizon. Without going too deeply into the technicalities, one can focus on three types of portfolio that are sustainable in light of the new tariffs imposed by Trump: Defensive Equity Portfolio (low volatility, risk protection), Balanced Equity Portfolio (a mix of stability and growth) and Aggressive Equity Portfolio (maximum growth and speculation).

Defensive Portfolio (low volatility, risk protection)
Objective: minimise the impact of trade tensions by protecting capital with safe-haven assets and resilient sectors. Composition:
- 40% ETF in non-cyclical consumer goods (e.g. XLP – Consumer Staples Select Sector SPDR)
- 20% Utilities and infrastructure (Duke Energy, NextEra Energy)
- 20% Gold and precious metals (GLD ETF – SPDR Gold Trust, Newmont Mining)
- 10% Pharmaceutical sector (Pfizer, Johnson & Johnson)
- 10% Cash or short-term bonds (TLT ETF – Treasury Bonds)
Rationale: Protects against recession and volatility stemming from the trade war, with stable assets and essential goods.

Balanced Portfolio (Mix of Stability and Growth)
Objective: Balance protection and growth opportunities in sectors less affected by tariffs.
Composition:
- 30% US technology sector (Microsoft, Apple, NVIDIA)
- 20% healthcare sector (UnitedHealth, Merck, XLV ETF)
- 20% US industrial sector (which benefits from protectionism) (Caterpillar, Lockheed Martin)
- 20% Gold and bonds for stability (GLD – gold, TLT – Treasury Bonds)
- 10% Emerging markets (EEM ETF – MSCI Emerging Markets, which may benefit from the shift in trade flows)
Rationale: Diversifies between growth and protection, focusing on US companies that do not rely too heavily on imports.

Aggressive Portfolio (Maximum Growth and Speculation)
Objective: Exploit speculative opportunities and sectors that could benefit from tariffs.
Composition
- 40% US technology and AI (NVIDIA, AMD, Microsoft)
- 20% US raw materials and energy (Occidental Petroleum, ExxonMobil)
- 15% US agricultural sector (favoured by tariffs on foreign products) (Deere & Co, Archer-Daniels-Midland)
- 15% Emerging markets not hit by US tariffs (India ETF – INDA, Brazil ETF – EWZ)
- 10% Cash and volatility options (VIX ETF for hedging, cash for buying opportunities)
Rationale: High exposure to sectors with strong growth and volatility, seeking to exploit changing trade flows.