• Sweeping new tariffs proposed by President-elect Trump on Mexico, Canada and China could increase prices and intensify geopolitical tension.
• Sectors like technology, manufacturing and consumer goods could be hit hardest.
• The profit margins of a wide range of companies could prove vulnerable. 

A new wave of tariffs proposed by President-elect Donald Trump is raising concern about a global trade war, with potential consequences for the U.S. economy and stock market. Targeting three of the country’s largest trading partners—Mexico, Canada and China—the tariffs would place a 25% levy on imports from Mexico and Canada and a 10% duty on Chinese goods, scheduled to take effect as soon as Jan. 20, 2025. These measures could disrupt key industries, reshape global supply chains and amplify inflationary pressure already weighing on American consumers.

While Trump has touted the tariffs as a solution to illegal immigration and fentanyl smuggling, their broader economic consequences could be far-reaching. Industries ranging from technology to retail and from automobiles to pharmaceuticals may find themselves at the forefront of potential trade disputes. Some fear this time will be different from Trump’s first trade war, when intermediate goods were targeted, sparing consumers from the worst effects. But if finished goods are included in the forthcoming round of “blanket” tariffs, the economic fallout could be more severe.

As policymakers and investors prepare, let’s explores the sectors and stocks most likely to be affected—and some of the broader risks a new trade war could bring to the global economy.

Fear of inflation

The announcement of sweeping new tariffs has already begun to stir concern, and some are drawing parallels to the trade tensions of 2017-2019. Back then, targeted measures created disruptions in supply chains and pressured corporate margins. But the proposed 2025 tariffs could go farther, affecting a broader range of goods and pushing costs more directly onto consumers. With questions swirling about whether this is a firm policy or a negotiating tactic, the potential economic and market fallout loom large.

In 2018, tariffs on Chinese electronics and consumer goods caused technology companies like Microsoft (MSFT) and Intel (INTC) to incur rising input costs, leading to declines in stock prices and heightened uncertainty in the sector. Similarly, tariffs on Mexican automotive imports forced U.S. automakers like General Motors ( GM) and Ford (F) to contend with rising manufacturing expenses and reduced consumer demand because of higher vehicle prices. Canada’s steel and aluminum exports were also hit with tariffs, driving up costs for construction, manufacturing and industrial goods, with companies like Caterpillar (CAT) and Boeing (BA) seeing their margins squeezed.

However, this time around, the proposed blanket tariffs could apply to a much broader range of goods, including finished products. Unlike the 2018 measures, which primarily targeted intermediate goods such as components, sparing consumers from the full brunt of cost increases, the current tariffs could directly raise prices on a wide variety of goods. If appliances, apparel and home goods are included, the ripple effects could increase inflation and thus become far more significant for household budgets. The effects could echo what happened with washing machines in 2018, when a 20% tariff led to a 12% price hike.

Looking ahead to the tariffs proposed for 2025, the risk remains substantial. Key sectors reliant on imports from these regions—consumer discretionary, industrials, materials and technology—are likely to bear the brunt of the problem. 

For the U.S. economy, this could exacerbate inflationary pressure as businesses pass higher costs on to consumers, while the broader market might see renewed volatility as investors price in supply chain disruptions and weakened corporate earnings. The stock market’s reaction in 2018, when the market pulled back sharply between September and December, serves as a cautionary tale of how tariffs can disrupt industries and investor confidence.

Market Sectors Likely to be Most Affected by Proposed Tariffs

Consumer Discretionary Sector (XLY):

• Apparel
• Automobiles
• Automotive parts
• Furniture
• Household appliances

Industrials Sector (XLI):

• Assembly equipment
• Industrial tools
• Machinery for production lines
• Transportation equipment

Materials Sector (XLB):

• Aluminum
• Chemicals
• Construction materials
• Plastics
• Steel

Technology Sector (XLK):

• Consumer electronics
• Electronic components 
• Laptops
• Semiconductors
• Smartphones

Uncertainty looms for manufacturers

As policymakers and businesses assess the potential fallout of these tariffs, the industrial sector has emerged as a primary area of concern. It relies on intricate global supply chains and cross-border collaboration. The automobile industry ranks among the most-exposed because it depends on interconnected operations spanning the U.S., Mexico and Canada.

Mexico, in particular, plays a pivotal role as a production hub for vehicles and components destined for American consumers. During the first three quarters of 2024, Mexican factories produced more than 3 million vehicles, with 2 million of them exported to the U.S. Major brands like Toyota (TM), Volkswagen (VWAGY), Ford (F), General Motors (GM), BMW (BAMXF) and Nissan (NSANY) depend on Mexican facilities for popular models such as Toyota’s Tacoma, Volkswagen’s Jetta and Ford’s Maverick.

If the proposed 25% tariffs on imports from Mexico and Canada are enacted, the effects on U.S. vehicle production and pricing could be substantial. Experts project such tariffs might drive up the cost of new cars by as much as 8%, significantly limiting consumer demand. Under that scenario, vehicle sales could decline by nearly 1 million units annually. Automakers may attempt to mitigate the impact by absorbing some of the increased costs but that would erode margins. During the 2018 tariff disputes, companies like General Motors and Ford saw their stock prices drop as investors reacted to rising production expenses and supply chain disruptions—a scenario that could easily repeat under these new proposals.

Beyond autos, industrial manufacturing giants like Caterpillar (CAT), Boeing (BA) and John Deere (DE) are also exposed to the proposed tariffs. Caterpillar, as a leader in construction and mining equipment, relies on global sourcing for components. Tariffs on imports from Mexico and China could increase production costs and reduce the company’s competitiveness in international markets. Boeing, meanwhile, faces a challenges because it relies on parts sourced from Canada and China. Higher tariffs on aerospace components could exacerbate existing supply chain disruptions, raising costs and delaying production. 

The auto and industrial sectors’ deep integration with global supply chains underscores the risks tariffs pose not just to businesses but also to consumers and workers. Disrupting these flows could lead to significant logistical challenges, forcing companies to relocate operations or pause production, both of which would be costly and time-intensive. For globally oriented manufacturers, the tariffs could erode their competitive edge and weigh heavily on prospects for growth.

Tariffs could disrupt tech supply chains

The proposed tariffs also cast a long shadow over the technology sector, one of the U.S. economy’s brightest stars, by threatening to upend the global supply chains that fuel its innovation and growth. With its heavy reliance on China for critical components and assembly, the sector faces not only rising costs but also potential disruptions to carefully calibrated supply chains. For companies like Apple (AAPL), Microsoft (MSFT), Dell (DELL) and HP (HPQ), these tariffs inject a new layer of uncertainty, threatening to reshape the global strategies that have long sustained their growth and efficiency.

For Apple, the stakes are particularly high. While Apple avoided tariffs during Trump’s first term, it has since sought to diversify production to countries like India. However, only about 10% of iPhones are currently manufactured outside of China, leaving the company vulnerable if exemptions are not granted this time. Research from Jefferies indicates that tariffs could cut into Apple’s prized gross margins by between 3 and 7 percentage points, depending on its ability to adjust pricing or production. 

In anticipation of higher tariffs, Microsoft, Dell and HP have already been racing to mitigate potential problems. Microsoft has asked suppliers to expedite shipments and move assembly of Xbox consoles and Surface laptops out of China as soon as possible. Similarly, Dell and HP are working to fast-track shipments of components and relocate assembly operations to alternative regions. These moves highlight the tech industry’s scramble to maintain continuity in global supply chains, while navigating a rapidly shifting trade landscape.

The tariffs, if implemented, are also likely to cause problems ror the biotechnology and pharmaceutical industries—especially generic drug manufacturers. A significant portion of generic drugs and their active pharmaceutical ingredients (APIs) are imported from India and China, with the former supplying approximately 48% of APIs used in U.S. drugs, and the latter supplying closer to 13% (together comprising more than 60% of the country’s total API imports). The U.S. only manufactures about 10% of its API needs domestically. Higher tariffs on these imports could therefore disrupt the supply of affordable medications and drive up healthcare costs, particularly for generics already under pricing pressure. 

Consumer fallout

The proposed tariffs could also deliver a blow to retail and apparel companies that depend on global supply chains. Brands and retailers with operations tied to Mexico and China are especially vulnerable because higher import costs could erode margins or force price hikes, potentially dampening consumer demand. This sector’s reliance on affordable manufacturing and materials places it squarely in the crosshairs of these trade measures.

Similarly, retailers like Best Buy (BBY), Five Below (FIVE) and Wayfair (W) face the dual challenge of managing rising costs for electronics, home goods and other imported products while maintaining competitive pricing. Best Buy, for example, could see higher costs for televisions and laptops, which rely on components sourced from China. Similarly, value-oriented brands like Five Below and Wayfair, whose business models thrive on low-cost goods, may struggle to balance cost pressures with customer expectations for affordability.

In apparel and footwear, global powerhouses like Nike (NKE), Under Armour (UAA) and Ralph Lauren (RL) rely on supply chains tied to offshore manufacturing, particularly in China. Tariffs on textiles and finished goods could raise production costs, forcing these brands to make difficult choices between absorbing the increased expenses, passing them on to consumers or accelerating efforts to diversify their sourcing to other regions. Luxury and accessory brands, such as Steve Madden (SHOO) and Tapestry (TPR), the parent company of Kate Spade, face similar pressures because their high exposure to global trade leaves little room for price flexibility without risking consumer pullback.

Large retailers like Walmart (WMT), Target (TGT), Home Depot (HD) and Lowe’s (LOW) are also likely to feel the brunt of higher tariffs on consumer goods and construction materials. Walmart and Target, in particular, source a significant portion of their inventory from overseas, including apparel, electronics and household goods. Higher import costs could lead to price increases, which may weigh on consumer spending. Home improvement giants like Home Depot and Lowe’s face risks from tariffs on tools, appliances and building materials, especially if construction activity slows because of rising costs. These companies, which already operate on thin margins, may be forced to absorb some of the increased expenses to remain competitive, further pressuring profitability.

The home goods and luxury segments, represented by Williams Sonoma (WSM) and Restoration Hardware (RH), are equally exposed. These companies depend on imports for furniture and home décor, categories where tariffs on materials and finished products could inflate costs and disrupt inventory. Similarly, e.l.f. Beauty (ELF), which produces affordable cosmetics, could see higher expenses for its globally sourced components, challenging its competitive pricing strategy.

2025 trade war: new era

As the possibility of new tariffs looms, the economic backdrop is starkly different from the landscape of 2017, when President Trump initiated his trade war. At that time, inflation was low, and the focus on intermediate goods, such as components, allowed producers to absorb some costs or pivot to alternative suppliers, often without passing significant price hikes onto consumers. This measured approach, combined with sourcing shifts to countries like Mexico and Vietnam, helped mitigate the fallout. But now, the stakes are arguably higher.

If the proposed tariffs extend to finished goods—a departure from Trump’s earlier strategy—the resulting price increases could hit consumers far harder. Consider the example from Trump’s first term: a 20% tariff on washing machines led to a rapid 12% price hike. If similar tariffs are applied across a broader range of consumer products, inflationary pressures could surge in an economy already grappling with record high prices. 

Today’s inflation-sensitive economy offers little room for error, making sweeping tariffs an even riskier proposition. Analysts warn higher import costs would likely shrink corporate margins and erode profitability for companies already contending with cautious consumer spending. While some businesses might manage temporary workarounds, the broader economic impact could be far more severe. Whether these tariffs are intended as a strategic bargaining tool or a definitive policy, their potential to disrupt global trade, raise prices and strain cash-strapped consumers underscores the high stakes of reigniting a global trade war in the current economic climate.

Andrew Prochnow has more than 15 years of experience trading the global financial markets, including 10 years as a professional options trader. Andrew is a frequent contributor Luckbox magazine.

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