How will Donald Trump’s tariff policy dictate Wall Street and global markets? EXPLAINED

Trump tariffs impact: Wall Street's frontline indices edged slightly higher on Wednesday, March 5, 2025, after better-than-expected US services data calmed worries of a slowdown in the US economy. Investors awaited a potential softer approach from US President Donald Trump on trade policy.

The S&P 500 was mostly unchanged in afternoon trading after losing six per cent since setting its all-time high last month and returning to where it was before Donald Trump’s election. The Dow Jones Industrial Average was up 128 points, or 0.3 per cent, and the Nasdaq composite fell 0.1 per cent.

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The benchmark S&P 500 has fallen over 5.7 per cent from its record high, while the tech-heavy Nasdaq has dropped over nine per cent from its peak. Investors are also closely monitoring the latest developments on tariffs. According to Wall Street experts, stubborn inflation and Trump's trade policies have rekindled fears of stagflation in the world's largest economy.

Trump tariffs on China, Canada, and Mexico

Commerce Secretary Howard Lutnick told news agency Reuters that Trump was considering granting some relief to import items, such as cars and auto parts, that comply with the US-Mexico-Canada free-trade agreement.

The remarks came after Trump escalated a global trade war on Tuesday. He imposed 25 per cent tariffs on top trade partners Canada and Mexico, citing ineffective border controls. Trump also announced that reciprocal tariffs will start on April 2, escalating trade tensions and dragging global financial markets. 

China retaliated to US tariffs, announcing a 15 per cent hike to import levies covering $21 billion worth of US agricultural and food products. In addition to an adverse impact on global growth, higher tariffs could spur inflation in the US, leading to higher interest rates and hurting flows into emerging markets such as India.

Global investors have sold riskier equities in the past few weeks, fearing that Trump's trade policies would amplify inflation pressures, slow the economy, and lower corporate profits. Multiple data reports have suggested signs of a cooling economy.

Also Read: Rupee hits three-week high of 86.93 against US dollar amid Trump tariffs: What’s supporting the domestic currency?

Trump tariffs impact on Wall Street, global markets

Investors are now bracing for a prolonged and destabilizing economic war, with market volatility and financial uncertainty taking centre stage. “This aggressive escalation could cause the most severe economic disruption since the global financial crisis, barring the pandemic," said the deVere Group.

Increased import costs mean businesses will either absorb the financial hit or pass it along to consumers, leading to inflationary pressures that weaken household purchasing power. The result? A slowing US economy disguised as a policy win. The fallout will extend beyond tariffs, with ripple effects threatening corporate profits, asset classes, and supply value chains.

Also Read: China slaps 15% tariffs on American goods amid trade tensions with Donald Trump: How will it impact US firms, consumers?

China’s retaliatory tariffs are expected to hit US exports where they hurt the most—strategically targeting agriculture and technology. “Trade conflicts don’t happen in isolation. They trigger chain reactions—capital flight, fractured supply chains, and heightened uncertainty for investors," said deVere.

According to Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, “Uncertainty unleashed by Trump tariffs is reigning supreme now, and this is weighing on markets. It would be difficult for the US to escape unscathed from retaliatory tariffs imposed by China, Canada, and Mexico. "

"Inflation in the US will rise, and the US Fed will sound hawkish. A sharp correction in the US stock market is likely. This will hurt Trump’s popularity, and the negative wealth effect of a sharp market correction can aggravate the slowdown of US growth. Soon, the Trump regime will realise this," he said.

Nigel Green, CEO of deVere Group, believes the US tariff-induced trade war concerns are immediate, transformative forces that “demand action from investors who seek to stay ahead.” Forecasts from deVere Group indicate that tariffs could cause inflation in the US to climb by as much as 2.1 per cent.

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Trump tariffs impact: What should global investors do?

“This is not a time to sit on the sidelines. Expected tariff-fuelled inflation environment demands strategic asset allocation, and those who act now will be better placed to turn volatility into opportunity," said Nigel Green. The notion that tariffs will fortify the US economy is fundamentally flawed.

Experts believe the market implications are vast. Domestic manufacturing stocks stand to gain as supply chains adjust to new tariff realities. At the same time, businesses reliant on imports face rising costs, forcing either a margin squeeze or price increases for consumers.

Also Read: Oil extends losing streak for third straight day on Trump tariffs, OPEC+ hike: Brent at six-month low, WTI drops 4%

According to Wall Street experts, the tech, retail, and automotive sectors must navigate this environment carefully. Those who take a proactive approach—securing exposure to companies with strong pricing power or tapping into alternative markets—will be best positioned to thrive.

The additional 10 per cent tariff on Chinese goods compounds existing economic frictions, amplifying costs for industries that rely on China’s vast manufacturing infrastructure. “From Asia to Europe, Latin America to Africa, and beyond, businesses and investors must anticipate and adjust to a world where supply chain recalibrations are no longer optional, but essential.”

He continues: “As inflationary pressures mount, global portfolios must adapt. “Sectors that thrive in such an environment—commodities, energy, and industrials—are poised for strong performance. Companies that can pass on costs without eroding demand will outshine competitors struggling to maintain margins. Investors who are selective and strategic will capture outsized gains. Those who hesitate risk being left behind," said Green.

“Beyond equities, alternative assets come into sharper focus. Hard assets, inflation-hedged investments, and emerging market opportunities tied to evolving trade flows could present significant upside. However, he adds that households, businesses, and investors would bear the cost of this economic war. "Unless there’s a change in course, the worst may still be ahead.”

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts, consider individual risk tolerance, and conduct thorough research before making investment decisions, as market conditions can change rapidly, and individual circumstances may vary.