Tariffs & Global Trade Charts That Matter

We recognize politics can be a difficult topic to write about. With so much on the line for economies and markets around global trading, it is necessary to explore factors that might affect portfolios in the years ahead.

Fortunately, many of President Trump’s closest economic advisors have conducted interviews and written about possible policy choices. It is like having the playbook before the game. Of course, we do not know what plays the head coach will ultimately call or how the game might shift.

First up are Canada and Mexico. With 25% tariffs announced to begin in February, tariffs could have a big impact. Both countries export much more to the US as a percent of GDP than the US sends. For Canada, this is 19 times more, while for Mexico, it’s 27 times more.

Few European countries are meeting NATO’s 2% of GDP threshold for military spending. If they are, the countries are listed on the right or “brave” side of the horizontal axis. Having a positive trade balance against the US means negotiations around tariffs are coming (which is below 0% on the vertical axis). Perhaps some of these countries can kill two birds with one stone and increase orders from US defense companies?

Or the future may bring a renaissance in industrial and defense expenditures in Europe. After slashing spending and crushing their economies in the last decade, their balance sheets are in better shape. Some countries still have massive levels of debt, but it could be worse. With threats on mainland Europe from the Russian regime, it would make sense to start to rebuild militaries. It could be the largest boost to spending in Europe in over 15 years.

One area that Treasury Secretary Scott Bessent and Economic Advisor Stephen Miran discussed was influencing who our allies trade with going forward. Namely, are they trading with the people that are our friends, frenemies, or enemies? Over time, China has become less important to the US as a trading partner, but our closest allies have all increased. The new administration likely wants to change this trend.

The economic advisors for President Trump are on board with using tariffs to bring countries to the table for negotiation. The potential inflation threat is one we need to think about. Though it is possible we see more of the pain go through the currency channel at first. This is what happened in the 2018-2019 period when the tariff toolkit was enacted. The dollar increased in value beginning this past October at a similar rate as early 2018.

At the end of the day, we are looking to protect and grow our capital on behalf of our clients. Currency and interest rate moves will likely affect multiple areas of portfolios over the coming year. Exploring the geopolitical events that could affect capital markets is a part of that process.

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