By Andrew Rymer, Senior Strategist at Schroders

President Trump has been unequivocal when it comes to trade, and his policy agenda prioritises tariffs as a tool to protect domestic industries and jobs. He has frequently cited trade imbalances as a key concern, both during his first term in office, and more recently. US trade deficits (where the value of imports exceeds exports) with partner countries therefore offer a proxy to gauge tariff risk.

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. President 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.

Do tariffs matter to these economies?

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.

In terms of trade deficit and each economy’s exposure to the US via exports. Mexico is notably high, as is Canada. China is at high risk of attracting tariffs, as the US trade deficit and President Trump’s previous actions illustrate, along with the EU. However, the economic exposure appears far lower than in Mexico and Canada. Whilst lower, this could understate China’s exposure to some degree, given re-routing of some goods that has taken place since President Trump’s first trade war. Among the other markets which face a combination of tariff risk and economic exposure, various Asian exporters screen as vulnerable.

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% 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. 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. China equity market revenues from the US are also relatively low at around 3%. 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.

How does this reflect in terms of global equity 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% as at 31 January 2025. Equity markets of those economies with which the US has a trade deficit account for around 27% of the index. The EU is largest with a share of 9%, followed by Japan and Canada with 5% and 3% respectively. The next largest markets are China, Switzerland, Taiwan and India. 

What does this mean for global equity investors?

There are a range of economies at risk from tariffs, measured by those with which the US has a trade deficit. However, there is some nuance when it comes to the economic and market impact.

Tariffs have potential to disrupt supply chains for both US and international listed companies. For companies in targeted economies, these could also suffer reduced competitiveness, or reduced market access. A potential for trade to be re-directed away from the US could lead to spillover effects for companies elsewhere in the world. The same could be argued for US companies if reciprocal measures are implemented. The ability of impacted companies to pass on the tariff impact to customers is a key factor. There may be some companies which are insulated from, or which can weather tariffs more than others.

If the US dollar strengthens versus the local currency in response to tariffs on partner economies, this represents a potential headwind for investor returns from partner markets in US dollar terms. The dollar is also relevant for US multinational companies with international revenues. It is worth bearing in mind that the S&P 500 revenue generation is only around 59% domestic. So, US companies earn over 40% of their revenues from non-US markets. In addition to any currency translation impact, these companies could also be subject to any retaliatory tariffs or measures.

Further reading : click here.