The return of Donald Trump to the U.S. presidency has reignited global economic uncertainty. Many companies in the U.S., Europe, and Japan are now facing a challenging environment. “There will be many losers and only a few short-term winners,” says Ufuk Boydak, CEO of LOYS AG. “We’re seeing a chain of economic and market-related consequences that are largely negative.” In such an environment, Boydak emphasizes that selective stock picking, high quality, regional diversification, and a focus on flexible, resilient business models are essential for investors.
Rising Tariffs, Rising Prices
The broad-based tariff increases are raising production costs, which in turn lead to higher consumer prices across supply chains. During Trump’s first term, the cost of washing machines rose by an average of $86. “Today’s tariffs, especially those on inputs from Canada and Mexico, now impact entire production processes,” says Boydak. This is particularly evident in the automotive and aviation industries, where components often cross borders multiple times. The result is that companies are passing increased import costs onto consumers.
This pass-through effect reduces real income, disproportionately affecting low-income households that spend a larger portion of their budgets on essentials. “The decline in real purchasing power is putting downward pressure on consumer demand,” Boydak adds. “Compounding this is the growing uncertainty about the potential for further trade escalation, which is eroding consumer confidence and reducing major purchases.”
Economic Impact and Inflation Risks
The cause-and-effect sequence is clear: higher tariffs lead to increased prices, which dampen consumption and investment, ultimately curbing economic growth. U.S. GDP growth could fall by up to 0.6 percentage points. Normally, the U.S. Federal Reserve would respond by lowering interest rates to stimulate the economy. “But tariffs act like a tax on consumers, making rate cuts less effective,” Boydak warns. The new round of tariffs could push inflation up by as much as 2.3 percentage points, adding further pressure to an already elevated price level.
Food and industrial inputs are particularly affected, creating a dilemma for the Federal Reserve. Supporting growth with rate cuts risks fueling inflation further. “This combination of declining growth and rising inflation resembles the stagflation of the 1970s,” Boydak explains. “It’s one of the most challenging scenarios for a central bank, where traditional stimulus can compromise price stability.”
Market Reactions and Shifting Capital
Stock markets have already reacted negatively, with sharp declines in cyclical sectors, especially automotive and aviation. Many investors are shifting their capital toward safer assets like gold, pushing the precious metal to new record highs. “It’s a vicious cycle,” Boydak says. “Uncertainty drives sell-offs, asset prices fall, capital becomes harder to raise, investments decline, and growth slows further.” He notes this negative dynamic could worsen over the coming year.
Short-Term Beneficiaries and Long-Term Pressures
In the short term, a few sectors may benefit. “The U.S. steel industry stands to gain from protective tariffs,” says Boydak. “Foreign agricultural producers—particularly in Brazil and Argentina—could also benefit, as they fill demand gaps created by Chinese or European retaliatory tariffs on U.S. goods.”
However, the list of sectors under pressure is far longer. “The U.S. automotive industry is already feeling the strain. Companies like Ford and GM face billions in profit reductions due to cost increases, while input prices continue to rise,” Boydak explains. The tech sector is also vulnerable due to its reliance on Asian suppliers. Export markets are being hit by retaliatory tariffs, harming U.S. agricultural exports and reducing farm incomes. Higher operating costs are further eroding profitability in the farming sector. “This could lead to growing discontent in rural regions,” Boydak adds.
U.S. machinery and equipment manufacturers are also affected, with projects delayed or canceled and input costs cutting into margins.
Global Ripple Effects
America’s protectionist shift is impacting major export nations such as Germany, the UK, and Japan. “German industry—especially engineering, automotive suppliers, and chemicals—is highly export-driven,” Boydak notes. “Small and medium-sized German exporters focused on the U.S. market are under significant pressure.”
Similarly, specialized British firms in sectors like aerospace, electronics, and pharmaceuticals face regulatory uncertainty and tariff risks. In Japan, large direct investments in the U.S. may yield some advantages, but smaller suppliers are struggling with exchange rate fluctuations and rising costs.
Investor Strategy in a Changing Landscape
From a capital markets perspective, the uncertainty is weighing on equities in the U.S., Europe, and Japan—particularly small and mid-sized export-oriented companies. Boydak concludes: “Now more than ever, active stock selection is crucial. Firms with localized production, limited U.S. exposure, and strong adaptability are best positioned to weather these headwinds.”
Source: LOYS AG
