Trump’s Trade War - An Investor’s Perspective

Markets dislike uncertainty, and a second Trump presidency would likely bring both volatility and unpredictability, largely driven by political risks and trade policies.

Looking at the numbers, nearly half of all U.S. imports come from just three countries—Canada, Mexico, and China—which Trump has been mentioning more frequently in recent weeks. Together, these three nations account for $1.3 trillion in U.S. imports, while the rest of the world covers around $2 trillion.

Certain sectors of the U.S. economy could be hit particularly hard, including automotive, energy, and food industries. Gas prices in the Midwest, for example, could rise by as much as 50 cents per gallon, as Canada and Mexico supply more than 70% of crude oil imports to U.S. refineries. The auto industry is also at risk, with nearly half of all auto parts imported from America’s northern and southern neighbors.

How Could Tariffs Affect China?

China relies less on trade overall than it did in the past. Over the last two decades, the country has steadily shifted its focus toward domestic production, reducing trade’s role in its economy. Today, imports and exports make up about 37% of China’s GDP, down from more than 60% in the early 2000s.

In recent years, U.S.-China trade has declined, especially in industries affected by previous tariffs and export controls, such as auto parts, data servers, furniture, and semiconductors. At the same time, China has strengthened trade ties with other partners, including the European Union, Mexico, and Vietnam. Since 2016, when Trump first took office, China’s share of global trade has grown by about 4%, while the U.S. share has declined.

Because of these shifts, an additional 10% tariff on Chinese exports to the U.S. would likely have a smaller impact than in the past. As of 2023, only 15% of China’s exports are sent to the United States.

How Could Tariffs Affect Canada?

Unlike China, where exports to the U.S. make up a relatively small share, Canada relies heavily on the American market. More than 70% of Canada’s exports go to the United States, accounting for 14% of total U.S. imports.

Under the new tariffs, Canada’s energy sector would be hit the hardest, as 80% of its oil exports are sent to the U.S. This imbalance in trade gives the U.S. significant leverage over its North American partners in negotiations.

How Could Tariffs Affect Mexico?

More than 80% of Mexico’s exports—including cars, machinery, fruits, vegetables, and medical equipment—are sent to the United States, making up 15% of total U.S. imports. This reliance is especially strong in Mexico’s northern industrial states—Chihuahua, Coahuila, Nuevo León, and Baja California—which account for nearly half of the country’s exports to the U.S., shipping over $200 billion worth of computers, electronics, transportation equipment, and other goods each year.

A 25% tariff on these products could have a major impact, with Bloomberg Economics estimating a potential 16% drop in Mexico’s GDP. The auto industry would be hit the hardest, as nearly 80% of the cars Mexico produces—around 2.5 million vehicles per year—are sold in the U.S.

Mexico’s energy sector would also face challenges. About 60% of its petroleum exports, mostly crude oil, go to U.S. refineries. At the same time, Mexico depends on the U.S. for refined oil, which meets over 70% of its domestic demand. New tariffs could drive up fuel prices, making energy more expensive and putting additional pressure on Mexico’s economy.

The Bigger Picture

Tariffs have far-reaching consequences, not just for the countries they target but also for businesses and consumers on both sides of the border. For the U.S., tariffs may provide short-term negotiating power, but they also risk disrupting supply chains, increasing costs for American businesses, and driving up prices for consumers. Industries like energy, automotive, and manufacturing could face significant challenges as trade tensions escalate.

The real driver of stock price swings isn’t just the tariff war—it’s the uncertainty Trump brings to the table. Investors don’t like guessing about the rules companies have to play by.

In today’s connected global economy, supply chains link us all, and protectionist moves can spark unexpected ripples. As trade talks continue, one big question lingers: will tariffs boost the U.S. economy, or will they stir up more uncertainty and long-term challenges for everyone involved?