Tariffs—The Death Knell for Emerging Markets?
By Rob Sigler, MBA
November 25, 2024
Thematic trading ideas based on the election outcome have become extremely popular of late. One such idea with broad consensus support is to avoid emerging markets. The thinking is that tariffs will extinguish incentives for American companies to import goods from these nations. Experts point to the fact that since the onset of Trump’s tariffs in 2016, China’s share of U.S. imports have fallen from 21% to 15%. What will happen when tariffs go up by 60%? Doomsday, right?
It’s important to understand that tariffs create distortions in economic incentives. While it is true that the U.S. share of Chinese imports fell, how do we reconcile the fact that China’s share of global exports rose by over 1.5 percentage points since the tariff introduction? Was the rest of the world growing faster than the United States? No. Did China find other countries to buy their goods? Perhaps. However, the magnitude of China’s growth suggests that American importers and Chinese exporters simply found a way to circumvent the rules. Vietnamese solar panels, constructed with Chinese solar wafers, still managed to get to the U.S. iPhones made of Chinese circuit boards and displays saw final assembly in India, and in turn were imported into the U.S. as Indian goods. Meanwhile, Mexico’s exports to the U.S. grew 55% from 2016 to present. Could some of those imports have been Chinese goods that were simply reimported into the U.S. as Mexican goods? Likely.
Our point here is simple. The United States doesn’t have infinite resources, nor a cost and competitive advantage in every industry. There are plenty of commodities and parts that can be produced more cheaply and efficiently outside of America. Tariffs do a lot to distort incentives, but enterprising people always find remedies to problems that aren’t immediately contemplated. Our sense is that emerging markets embed extraordinarily low expectations and are likely to be just fine.
About the Author
Robert Sigler, MBA
Rob serves as a Managing Director and the Chief Investment Officer for Westshore Wealth. Rob’s long career in the financial services industry reflects a diverse set of vocational tools and experience. He has advised some of the world’s most renowned […]
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