Overview

The Trump Administration has introduced a new wave of tariffs targeting imports from Canada, Mexico, and China. Key measures include:

• Canada & Mexico: A 25% tariff on select goods, with a reduced 10% levy on Canadian energy resources. On February 3, 2025, Canada and the US reached an agreement to delay the implementation of these tariffs from February 4, 2025, to March 4, 2025. Separately, Mexico and the US have also agreed to a similar deferral.
• China: An incremental 10% tariff on top of existing duties, effective February 4, 2025.
• De Minimis Rule Elimination: The exemption for items valued below USD 800 will be revoked, effective February 4, 2025.

Economic Significance

These three nations collectively represent the United States’ largest trading partners, accounting for USD 1.4 trillion in imports—approximately 40% of total US imports. This substantial volume of trade underscores the critical role these imports play in supporting US economic activity, from supply chains to consumer spending.

Despite potential headwinds, the U.S. economy remains resilient. GDP grew by 2.3% in Q4 2024, while the labor market added 256,000 nonfarm payroll jobs in December—notably higher than the 2024 monthly average of 186,000 jobs.

While tariffs may offer temporary protection to domestic industries, broad-based import levies typically exert upward pressure on consumer prices, driving short-term (e.g. 3 months) inflationary pressures and moderating growth over the medium term (e.g. 6 months). The decision to impose tariffs on key allies underscores the administration’s “America First” policy and its shift toward economic isolationism.

Market Implications

Our investment strategy remains unchanged at this stage. Our 2025 thematic outlook, “One Step at a Time: Navigating Opportunities,” remains pertinent amid evolving macroeconomic conditions.

Implications over 1H2025 Global Equities:

We maintain a favorable view, supported by resilient corporate earnings, particularly among the Magnificent Seven (“MAG7”) and the AI sector.

AI Sector Evolution: The rise of open-source AI models, such as DeepSeek, reinforces our expectation that software adoption will emerge as the next growth driver in AI. While demand for semiconductor manufacturers will persist, the focus on cutting-edge hardware may decelerate.

Implications over 2H2025 Asian Equities and Fixed Income:

We expect greater market participation as U.S. interest rates and dollar strength ease, driven by a slowdown in economic activity following the impact of tariffs.

China’s Reduced Exposure to the US: The incremental 10% tariff on Chinese imports is expected to have a limited impact. US exports now constitute only 13% of China’s total exports, down from 22% in 2018, reflecting China’s ongoing diversification of trade relationships.