Trump’s trade tariffs are triggering a trade tension between two of the largest economies in the world. This development is understandably shaken markets worldwide and increased investor’s anxiety. While investors may be anxious about protecting their portfolio, it’s crucial to stay calm and look beyond the short-term volatility to see where things are really going. This will help investors better capitalise on future opportunities. 

To that end, let’s take a look at how global trade is likely to be reshaped in light of the newly announced trade tariffs.  

Key Points 

• US tariffs have heightened market volatility and raised concerns about long-term economic growth. 

• Asia is emerging as a trade beneficiary, attracting investment and supply chain shifts away from China. 

• Emerging markets are gaining traction as investors seek diversification and higher growth potential outside the US. 

US Markets – Is the growth story slowing down? 

Trump’s trade tariffs are aimed at benefiting the US economy by making foreign imports more expensive. This is believed to allow domestic companies to compete more fairly, bring jobs back to the US, and encourage Americans to buy local, thereby fostering economic growth. 

However, economists are divided. Critics instead state that raising the price of goods from overseas may lead to higher inflation and drag down economic growth. Indeed, analysts at the Tax Foundation forecast a drop in US GDP by as much as 1% for 2025 ^[1]. 

This view is echoed by researchers from Australia’s Victoria University, who estimated a 2% GDP drop for the year, with persistent long-term economic decline averaging 1.6% annually GDP loss over the next 15 years ^[2]. 

These numbers could illustrate why Trump u-turned on his approach with a 90-day pause; interpreted by some analysts as an attempt to mitigate the potential economic impact to the US which could be severe and long-lasting, and such economic considerations are likely to prompt further adjustments down the line.  

But what does it mean for the US economy, especially over the long term? Well, we’ve already seen notable drops in the Big 3 market indicators – S&P 500, Nasdaq and Dow Jones – followed by a relief rally upon the announcement of the 90-day pause.  

Such near-term volatility suggest market’s disdain for Trump’s policies – and does little to promote investor confidence.  

The fact is US market watchers are in for a period of heightened uncertainty. Trade tariffs – especially those on the scale being sought after by Trump – can have far reaching and unpredictable consequences on the US economy.  

This coming period of economic uncertainty is prompting investors to hedge against risk, leading to rising interest in portfolio diversification. The question is, where should investors look to next? 

Asia – Why it’s back in the spotlight 

At the time of writing, Trump’s administration has set total tariffs at 145% on goods from China – while temporarily keeping tariffs at a relatively breezy 10% for other countries.  

While it is still uncertain where tariffs will end up, many analysts expect that Trump’s trade policies will cause a change in global trade by shifting supply chains away from China. This will benefit Asia, which has several countries well-positioned to take over orders.  

Businesses seeking to avoid tariffs may choose to source from other suppliers in Asia. Even if these countries charge a higher production costs, businesses may still choose to redirect their production as long as the increased costs are far enough below the tariff rate.  

Additionally, businesses may also open manufacturing plants in Asia to perform final assembly before being exported. This could allow them to still benefit from cheaper raw materials and basic components from China, while enjoying lower tariffs for export to the US due to the final product’s country of origin.  

With higher foreign investment inflows, and greater orders from American and multinational companies, Asian economies may experience higher economic growth and development if these shifts materialise.  

This potential development has led to greater interest in Asia from global investors.  

Spotlight on Japan, China, and Hong Kong 

In particular, Japan, China, and Hong Kong are emerging as key markets amid shifting global trade dynamics. Here’s a quick breakdown for each: 

Japan: Seeking Stability Amid Uncertainty 

Japan’s Nikkei225 was not immune to the global market turmoil. Although Japan sought to engage in trade talks with the US to mitigate the impact of the tariffs, deep-rooted economic issues such as weak inflation and wage growth continue to put Japan on the slow path to monetary policy normalisation. 

Given Japan’s loose monetary policy versus tightening in the US and Europe, some traders explore opportunities through the Nikkei225, which allows for trade opportunities via Nikkei-linked futures. Also, in times of US tech pullbacks, the Nikkei often moves differently due to its sector mix (more industrials, fewer hyper-growth names), making it an attractive alternative amidst an uncertain US outlook. 

Japan’s Nikkei 225 also saw a strong push towards the downside and is now pulling back towards the 36,200-point level, in line with the 78.6% Fibonacci Retracement level. Further resistance levels at 38,100 points and 40,200 points, in line with swing highs, could be tested in the case of a bullish recovery. In the event of further bearish momentum, the price may potentially push lower towards the 31,500 points support in line with 78.6% Fibonacci Retracement and 50% Fibonacci Extension.  

While technical analysis can offer insights into potential market behaviour, it should be used carefully alongside other risk management strategies, and outcomes cannot be guaranteed. 

Hong Kong: Weathering the Storm 

Hong Kong’s Hang Seng Index experienced its most significant one-day drop since the 1997 Asian Financial Crisis amid escalating trade tensions. However, the market showed resilience, aided by regional market gains and efforts by Beijing to stabilize markets. 

In comparison to Chinese indices, the HSI allows access to Chinese companies but with fewer domestic regulatory restrictions. This means that a wider range of investor types can participate in China through the HSI, providing greater liquidity. 

Ticker: HSI, Timeframe: Daily 

HSI also remains in bearish territory, holding below the 50-day Moving Average (MA). A pullback towards the 22,600 points resistance could be possible – an area of Fibonacci confluence in line with the 61.8% Fibonacci Retracement and 127.2% Fibonacci Extension. Should the bearish sentiment persist, price could potentially retest lower support levels at 19,000 and 17,000 points. Any stronger retracement towards the upside could see the price retest the swing high at 24,700 points. 

China: Navigating Turbulent Waters 

China’s stock markets faced sharp declines following the US announcement of increased tariffs. In the wake of tariff announcements, Chinese stock indices dropped over 7% daily, reflecting investor concerns over the trade tension.  

In response, Beijing implemented measures to stabilise the markets, including support from state-owned entities and pledges of economic stimulus, but showed resolve against backing down, implementing a 125% tariff against the US. These actions contributed to a modest recovery, but only time will tell how much more pressure Trump is willing to place on Beijing. 

The China 50 Index is one of the most liquid instruments for accessing Chinese equity sentiment, with strong intraday movements that appeal to active traders. It’s considered by some traders as a top-down proxy for sentiment on the world’s second-largest economy, whether you’re trading based on PMI data, yuan devaluation, or geopolitics.  

Ticker: CHINA50, Timeframe: Daily 

China 50 remains pressured by bearish momentum and is now testing pullback resistance at the 13,000-point level, in line with 61.8% Fibonacci Retracement and 127.2% Fibonacci Extension.  

With further bearish momentum, we could potentially see the price push lower towards the 11,800 and 11,000 points support levels, in line with 61.8% and 100% Fibonacci Extension levels. However, a deeper retracement could potentially see the price push higher towards the 13,800 points high. 

The rise of emerging markets  

Apart from Asia, emerging markets may also benefit from the evolution of global trade practices.  

Emerging markets are defined as developing nations that are undergoing rapid industrialisation and economic growth, transitioning into a developed economy. Typically, such economies tend to have high levels of investment, productivity and exports. Some examples of emerging markets include Brazil, India, Mexico, Egypt, Turkey, South Africa, and Vietnam.  

With well-developed infrastructure, many emerging economies – both in and outside of Asia – are well-poised to take over orders, gaining strong drivers to their economic growth.  

Additionally, emerging economies are characterised by high population growth and increasing affluence – key factors for high economic growth that outpaces those of developed countries.  

In 2025, emerging economies are projected to grow 4.3%, outpacing developed markets at 1.6%, according to a report from Swiss analyst Pictet Asset Management. ^[3]  

Exposure to emerging economies can be accessed through ETFs or CFD instruments that track their performance, subject to availability and local regulations. One such example is the iShares MSCI Emerging Markets ex China ETF (EXMC), which allows exposure to emerging economies without Chinese markets, though this is for illustrative purposes only and does not constitute investment advice.   

Emerging Markets Case Study: Charting a Course through Uncertainty 

For an broader exposure across emerging markets, an example of such an ETF is the iShares MSCI Emerging Markets Index Fund (EEM), which some traders may access via CFD products depending on availability and local regulations. EEM offers exposure to over 800 large- and mid-cap companies across more than 20 emerging economies, including powerhouses like China, India, Brazil, and Taiwan. This diversification can help mitigate volatility, though emerging markets also carry heightened risks, including political instability, currency fluctuations, and lower liquidity compared to developed markets.  

(Note: The reference to EEM is for illustrative purposes only and does not constitute investment advice or a recommendation to trade.) 

EEM shows a similar price structure to other indices in this article. Bearish momentum is pushing price lower to test supports at the $38.50 swing low, in line with the 50% Fibonacci Extension. Price is now pulling back to $42.80 resistance, in line with the 61.8% Fibonacci Retracement and 100% Fibonacci Extension. Any further pullback could see price retest the swing high at $45.50, in line with the 161.8% Fibonacci Extension. 

Final thoughts: Rebalancing for global opportunities 

While the US markets have long captured investor attention, the risk of a US-China trade war and resulting economic slowdown cannot be ignored. Investors may consider exploring opportunities beyond the US, in regions like Asia and other emerging markets, as part of broader diversification strategies. 

Considering different investment options is important, given the fluid nature of global markets. It is important to stay informed about global events and continually educate yourself on evolving market trends. 

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(Note: Technical levels denoted in this article are not predictive and should not be relied upon to forecast market behaviour. Price movements are subject to market volatility and external factors.) 

References