Trump’s tariffs and spending cuts pose double threat for investors

Investors must prepare for significant transformations as President-elect Donald Trump is set to implement extensive tariffs and establish the Department of Government Efficiency (DOGE). This advisory comes from Nigel Green, CEO of deVere Group, a prominent independent financial advisory and asset management firm, as President-elect Trump has proposed an additional 10% tariff on China, along with 25% tariffs on both Canada and Mexico.

This assertive trade policy, aimed at combating illegal immigration and drug trafficking, represents a notable intensification of his campaign promises. In parallel, the newly-proposed DOGE aims to achieve $500 billion in federal spending reductions, posing risks to sectors that heavily depend on government contracts.

Nigel Green cautions, “These two initiatives—protectionist tariffs and significant cuts in government spending—create a volatile environment for investors. The associated risks are extensive and profound, making it crucial for investors to reassess their portfolios at this juncture.”

Trump’s tariff strategy indicates substantial disruptions in global trade relations, with major trading partners already indicating possible retaliatory measures. The economic ramifications could extend across various industries, particularly those reliant on international supply chains and exports.

“Investors should brace for immediate fluctuations in sectors such as automotive, technology, and agriculture—industries that are closely linked to trade agreements and foreign markets,” states the deVere CEO.

“These tariffs will not only increase costs for businesses but also contribute to inflation, potentially prompting further tightening of monetary policy.”

China, a frequent target of Trump’s trade initiatives, is set to face an additional 10% tariff on its exports to the United States. During his campaign, Trump suggested tariffs could reach as high as 60%, indicating the possibility of further escalation.

“Markets are averse to uncertainty, and the likelihood of a full-scale trade war will compel investors to reevaluate their risk exposure,” concludes Nigel Green.

While tariffs capture significant media attention, the extensive cost-reduction initiative associated with DOGE may yield equally significant consequences. The Trump administration intends to pinpoint and eradicate $500 billion in what it classifies as “unauthorized or misallocated” federal spending.

Sectors that depend heavily on federal funding face the greatest risk. Defense contractors, pharmaceutical companies, and IT service providers—industries that have traditionally benefited from substantial government expenditure—are particularly at risk.

“Defense contractors are confronting the possibility of budget reductions within the Department of Defense, while pharmaceutical companies that depend on federal health programs may experience a significant decline in revenue,” states the chief executive of deVere. “Even industries such as clean energy, which rely on subsidies and incentives, could find themselves adversely affected by DOGE’s reforms.”

In light of this uncertainty, investors are urged to take prompt action to safeguard their portfolios. Nigel Green underscores the necessity of diversification as a vital strategy against the dual challenges posed by tariffs and spending reductions.

“Having concentrated investments in government-dependent sectors or trade-sensitive industries could result in substantial losses in the coming months,” he warns.

“Now is the opportune moment to diversify investments, ensuring resilience against market fluctuations. Investors should also contemplate increasing their stakes in sectors less influenced by government policies, such as technology innovators or global consumer goods.”

Moreover, currency markets are anticipated to experience volatility. While tariffs and fiscal constraints may temporarily bolster the dollar, extended trade conflicts could lead to its depreciation, presenting opportunities for investors to shift towards risk-sensitive currencies. Despite the prevailing uncertainty, opportunities will arise for those who take decisive action.

“Periods of market volatility often create favorable conditions for strategic investments,” asserts Nigel Green. “The essential factors are preparation and adaptability. Investors who proactively modify their strategies now will be well-positioned.”