[Finterest] How will Trump’s tariffs affect your investments?

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If the US Federal Reserve stays hawkish to counter inflation brought about by the new tariffs, dollar-denominated assets could become more attractive

MANILA, Philippines – Former US President Donald Trump is bringing back rocky trade wars, and if you have investments in both the Philippines and the US, these new tariffs could impact your portfolio too.

Trump’s administration has announced new tariffs and trade measures that could send ripple effects across global markets. The new policies include tariffs that go as high as 25% on imports on Mexico and Canada and a doubling of duties on Chinese goods to 20%. In response, Canada, Mexico, and China have all vowed to impose retaliatory tariffs.

Adding to the disruption, the US plans to charge fees on ships docking at US ports if they belong to fleets that include Chinese-built or Chinese-flagged vessels, another move that could drive up the historically low costs of shipping that enables global trade.

These measures may seem distant to you, but their ripple effects could hit your wallet — and portfolio — sooner than you think. When tariffs hit critical imports like oil and raw materials, they increase production costs for businesses. This eventually gets passed on to consumers, leading to higher prices for goods and services and hence, inflationary pressures.

Former Bangko Sentral ng Pilipinas (BSP) deputy governor Diwa Guinigundo warned that tariffs could push up gasoline prices in the US, increase the cost of transporting goods, and drive up food prices.

“Tataas ang presyo ng langis, tataas ang presyo ng gasolina, tataas ang mga produkto na nakadepende, nakaasa sa langis. So ‘yun ang pagkain, ang mga damit na kanilang sinusuot,” he said in a radio interview.

(If oil prices rise, gas prices will climb, as well as the cost of products that depend on oil. So that’s food, the clothes that they wear.)

What does this mean for investors?

A big risk for investors is how these tariffs affect central bank policies. If inflation rises, the US Federal (Fed) Reserve may halt its expected rate cuts or even consider raising interest rates again. This would make borrowing more expensive, strengthen the US dollar, and shift capital flows around the world.

Federal Reserve chair Jerome Powell has stated that the Fed is in no hurry to cut rates as it adopts a wait-and-see approach to how Trump’s new policies could affect the economy.

“As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry, and are well positioned to wait for greater clarity,” Powell said.

Higher interest rates could negatively impact the US stock market. When companies face higher costs and weaker demand, profits decline, and stock prices tend to fall. Businesses that rely on foreign materials, global supply chains, or exports could see their bottom lines shrink, creating more market volatility.

Already, the market is reacting skittishly to Trump’s new measures as the S&P 500 experienced its worst week since September 2024, falling 3.10% last week. The Dow Jones Industrial Average also shed 2.37% while the Nasdaq Composite lost 3.45%.

“With what looks like the start of a trade war, inflationary pressures are expected on the global front,” said Andrew Chua, AUB’s senior vice president and head of trust. “Overall, we expect volatility to remain elevated as continued uncertainty persists in both the global economic as well as geopolitical front.”

While the Philippines may not be directly affected by US tariff policies, a stronger US dollar and higher US rates could lead to foreign investors pulling money out of emerging markets, impacting local stocks and bonds. In other words, if the Fed keeps interest rates elevated, then US bonds and dollar-denominated assets become more attracted. As such, the Philippines might see a greater exodus of foreign capital leaving the country to chase better returns in the US.

“The capital, foreign portfolio investments (FPIs), could leave the Philippines and go back to America because the interest rates back home are higher,” Guinigundo said in Filipino.

FPIs, also known as hot money, include stocks, bonds, and other securities that move in and out of countries quickly. BSP data shows that in January alone, around $283 million in FPIs left the Philippines, with 35% of outflows going to the US.

This shift isn’t necessarily bad if you hold US-dollar investments. Investors looking for stable, high-yielding assets could benefit from funds like AUB’s Global Dollar Fund, which has been recognized as one of the best-managed dollar funds in the country by the CFA Society Philippines. US Treasury bonds and medium-term bond funds could also be solid options, offering steady returns with less volatility. [READ: LIST: Philippines’ best managed funds for 2024]

“For investors, our PHP (Philippine peso) and US dollar bond funds will continue to be opportunistic in terms of deploying funds, taking positions on the belly of the curve with a duration of three to five years,” Chua said. “We believe this space will give us the best returns in terms of accruals with the least volatility.”

If you’re investing in the Philippine stock market, be prepared for potential foreign outflows. If investors pull money out, it could lead to lower liquidity and weaker stock prices.

However, AUB’s Chua believes the Philippine economy still has room to grow. He pointed out that the BSP may have leeway to cut local interest rates, thanks to the recent strengthening of the peso. Lower rates could support local businesses and consumer spending, which may help offset some of the negative effects of foreign capital outflows. — Rappler.com