Investing.com – President-elect Donald Trump will begin his term with tough trade measures, likely announcing a 10% global tariff or targeted tariffs of up to 25% on Canada and Mexico and 10% on China during his term, BCA Research said. The first week.
“Tariffs will be the big news on day one, or week one, and we expect President Trump to come out swinging,” the company said in a report issued Thursday.
“We expect him to be aggressive because now is his greatest period of political capital and influence over other countries,” she added. “The US labor market is strong, global manufacturing is weak, and the midterm elections are 22 months away.”
BCA expects these tariffs to lead to immediate price increases, disrupt global manufacturing, and possibly lead to a longer-term deflationary pullback.
Meanwhile, Trump's tax cuts — estimated at $4.2 trillion over a decade — are expected to swell the budget deficit and increase inflationary pressures, keeping Treasury yields high. The BCA highlights a 52 basis point rise since the election, confirming expectations of a widening budget deficit under Republican leadership.
In turn, this is likely to keep interest rates high for longer and the dollar strong, BCA said in its report.
The dollar has risen 7% since its lowest level last year, with strategists at BCA recommending staying long the currency until the tariff announcements are fully priced in. However, the company warns that “if the tariffs disappoint, the dollar will fall,” and any pullback could follow once initial market reactions stabilize.
Oil markets have also responded strongly, rising 7% since the election and 17% since the 2024 lows. This rally is in line with ongoing geopolitical tensions, particularly between Israel and Iran, which BCA believes are likely to escalate.
Moreover, Trump's imposition of new sanctions on Russia and China, including controls on semiconductor exports, could boost energy prices.
However, the stock is expected to face volatility in the near term. The combination of rising Treasury yields and uncertainty about Trump's tariff strategy could weigh on markets, especially as supply chain disruptions spread.
BCA advises selecting positions for increased volatility while favoring defensive sectors such as aviation and defence.
It also recommends maintaining a long position in US small-cap stocks compared to their global counterparts.
