If US President Donald Trump's promised higher import tariffs are enacted, world trade will be significantly affected. But some industries are better placed than others to weather the storm.
The second Trump presidency will continue the re-industrialisation of the US economy. But the new administration is likely to take a dramatically different approach. Whereas President Joe Biden sought to shore up the US economy by promoting environmental technologies, solar and wind power, electric mobility, and green hydrogen, President Trump looks set on taking a completely new course.
Trump's instruments are cheap energy, deregulation, lower taxes, and the pièce de resistance: high import tariffs. These aren't a new feature of global trade - the European Union has already imposed additional tariffs on Chinese electric cars in response to Chinese subsidies. But Trump looks likely to use tariffs not just to re-balance trade flows, but also as an instrument of power to enforce goals beyond pure economics.
For example, he has signalled that increased tariffs on goods from Mexico, Canada, and China are weapons in the fight against drug trafficking and immigration. Of course, this strategy may be foiled if Trump finds that he can't keep his other election promise, which is to limit inflation, if prices rise due to higher tariffs.
The threat of higher tariffs extends to all the major trading partners of the US, although the levels are unclear. Trump has proposed a wide range of tariff rates: a general tariff of 10% to 25% on certain imported goods from China, Mexico and Canada as well as a 25% tariff on steel and aluminium from Europe.
While tariffs on Chinese goods have already taken effect and prompted a response, others are still under discussion. In principle, the EU would be severely impacted by any rise in US tariffs, as the US is the most important destination for EU exports. The bilateral trade and investment relationship between the US and the EU is the largest in the world.
Even so, not all companies and industries would be equally affected should significant tariffs be imposed. If a company can meet the demand for its products and services with local production in the US, it will be less vulnerable to the full tariff impact than a competitor whose goods are imported.
With Canada and Mexico slated to be among the first countries to face tariff measures, Trump has set his sights on the automotive industry. Approximately four million cars were produced in Mexico's 37 car factories last year, almost as many as were manufactured in Germany. It is likely that up to 75% of Mexican car production was exported to the US.
This may change in the face of tariffs, as Trump seeks to lure non-American car makers to build their vehicles in the US if they want to sell them there. Some car manufacturers have already put future plans to increase production in Mexico on hold. Others, many of them European, already have significant and growing manufacturing footprints in the US.
For instance, in 2023, around 900,000 vehicles were produced by German automotive companies in the US, compared to some 400,000 that were imported into the US from Germany.
European pharmaceutical companies generate a high proportion of their sales in the US, and in the past ten years the value of drug imports into the US has more than doubled. Since 1995, a World Trade Agreement on duty-free treatment for pharma products means that these tariffs are very low: just 0.9% on imports to the US. However, this is not a binding agreement, so tariff increases cannot be ruled out. We expect the US government to target China before the EU, if it does decide to levy higher tariffs on pharma products.
Chemicals is another industry likely to be impacted by rising US tariffs. The US is the world's second largest chemical producer and largest chemical importer after China. In 2023, Germany exported EUR 36.4 billion in pharma and chemicals to the US, amounting to 14.3% of its production. That's on top of the significant and growing local manufacturing presence German companies already have in the US.
Swiss companies are also likely to be impacted by increased US tariffs, since the US is Switzerland's most important trading partner. However, pharma, industrial, and food manufacturing companies with production capacity in the US are likely to be less affected than firms without this level of diversification.
As early as the beginning of the 19th century, British economist David Ricardo, one of the founding fathers of economics, pointed out that tariff barriers to trade are harmful because the disadvantages for consumers cannot be offset by advantages for producers. Consequently, this means that in the long term there are no winners in a tariff war.
That said, there will be investment opportunities in the wake of a rise in US tariffs during the Trump presidency. Overall, companies with a manufacturing footprint in the US are likely to be better placed to weather the Trump tariff tornado, should it emerge, than those located solely outside.
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