After world stocks fell to their lowest levels in six weeks on Friday, and as US President Donald Trump reiterated his tariff deadlines, Andrew Rymer at Schroders and Mark Haefele at UBS Global Wealth Management look at which economies face tariffs, the potential economic impact, and the implications for equity markets and asset allocation. 

After world stocks fell to their lowest levels in six weeks on Friday, amid concerns about how the US appears determined to impose tariffs, wealth managers examined what's at stake, noting that Taiwan is particularly in the potential firing line.

In contrast to his first term, actions on the trade front have been a policy priority for US President Donald Trump and the rules of the game are changing, according to senior strategist Andrew Rymer at UK-listed investment manager Schroders. 

Within his first month back in office, Trump already announced 25 per cent tariffs on goods imports from Mexico and Canada, which he said on Thursday will apply on March 4, instead of April 2, citing fentanyl and border security concerns. There will also be 10 per cent tariffs on Chinese goods imports, in addition to the 25 per cent tariff already in place on some goods; and a 25 per cent tariff on all aluminium and steel imports. He has also directed his administration to draw up plans for reciprocal tariffs equivalent to those imposed by other countries on US goods. He floated 25 per cent tariffs on shipments from the EU too.

Crunching the data, the wealth managers explained that tariffs will affect countries in different ways. 

Rymer said China, the EU and Mexico are most at risk from tariffs while Mexico, Canada and Taiwan have the most exposed economies. Taiwan, Europe ex UK and Canada have the most exposed equity markets. The potential for further market volatility cannot also be ignored, given risks of additional tariffs, tariff rate escalation, and the prospect of retaliatory tariff or non-tariff measures.

Equities around the world fell to their lowest levels in six weeks on Friday. US equities also dropped the previous day, with renewed tariff concerns and tech-related weakness weighing on markets. The S&P 500 fell 1.6 per cent, while the tech-heavy Nasdaq slid 2.8 per cent. That pressure extended through to Asia, with Japan's Nikkei 225 and South Korea's KOSPI both down more than 3 per cent. US stock futures were however broadly higher. S&P 500 futures were up slightly in the European morning session today.

Who is at risk of tariffs?
China, the European Union (EU) and Mexico top the list of potential targets. This is not a revelation, with Mexico and China already the subject of executive orders on trade, and the EU now under scrutiny. “However, there are other countries which could yet attract attention, including various Asian export economies. Trump agreed a revised free trade deal with South Korea in his first term, but several economies in the region have large deficits with the US,” Rymer said in a note.

“Trade deficits are just one yardstick with which Trump may measure trading relationships. He has previously cited currency manipulation, unfair domestic subsidies, as well as intellectual property theft among potential catalysts for action,” Rymer continued. “With reciprocal tariffs being readied, the average effective tariff rate is another metric to consider,” he said. For those exporting to the US, the key question is what proportion of GDP do exports to the US represent; this captures the economic impact. “Mexico and Canada are the most impacted on this measure. Asian exporters, Taiwan and Thailand also have a sizeable exposure,” Rymer said.

Which equity markets have the greatest exposure to the US?

For equity market investors, gauging the individual market exposure to the US in revenue terms is equally important. What proportion of revenues could face a potentially negative impact from the imposition of tariffs?

“Taiwan stands head and shoulders above other markets on this basis. With 43 per cent of revenues derived from the US. Microchips are the major export in question here, and Taiwan is the only leading-edge chip manufacturer in the world,” Rymer said. “As a result, you might anticipate that such a strategically important resource could be exempted or given some relief, though that is not guaranteed. Europe ex UK and Canada also stand out, as do various Asian exporter markets."

“It is worth noting that the Mexican equity market, despite its heavier economic exposure, is less exposed revenue-wise, at least directly,” he continued. “China equity market revenues from the US are also relatively low at around 3 per cent. However, this is not straightforward as these may not reflect complex global value chains. Domestic suppliers to export companies in these markets could face spillover effects. Meanwhile component manufacturers exporting to third countries for processing or final assembly before export onto the US could also be impacted,” Rymer said.

Fixed income
Mark Haefele, chief investment officer at UBS Global Wealth Management also weighed on in the issues.

Recent bond moves showed that quality fixed income should remain an integral part of a resilient portfolio that can help investors navigate the uncertainty ahead, Haefele said. “Thursday's sell-off in equities underscores the role of quality fixed income in managing volatility,” Haefele continued. “Quality bonds are among those investments we like in a portfolio, as they can preserve capital and reduce equity volatility. If US growth slows more quickly than expected, we would expect swifter monetary policy easing to underpin a sharp rally in quality bonds,” he added. “With economic growth concerns rising and investors shifting into bonds, the recent drop in yields offers an attractive entry point,” he said.

Market share
For equity markets, the US is the dominant market in the MSCI All Country World Index, which includes both developed and emerging markets, with a share of 66 per cent as at 31 January 2025. Equity markets of those economies with which the US has a trade deficit account for around 27 per cent of the index. The EU is largest with a share of 9 per cent, followed by Japan and Canada with 5 per cent and 3 per cent respectively. The next largest markets are China, Switzerland, Taiwan and India.

Haefele said the US economy is still in good shape, and he does not think the announced tariffs will necessarily lead to a major negative impact on growth. But he believes market volatility will likely persist, and the recent movement in bonds reaffirmed that quality fixed income should remain an integral part of a resilient portfolio that can help investors navigate uncertainty ahead. Haefele recommends diversifying and boosting portfolio income through diversified fixed income strategies, senior loans, private credit, and equity income strategies.