- We believe increasing portfolio diversification appears more critical given ongoing uncertainty around the scope and implementation of US trade policy.
- Semiconductor chips are, for the time being, exempt from higher tariffs. Dominating the global foundry market with a two-thirds share, Taiwan’s firms hold near-total control over advanced chip production.
- With a greater emphasis on global trade negotiations, investors are shifting toward more tactical, country-specific strategies to amplify exposure in economies better able to weather tariff upheaval.
If US President Donald Trump’s so-called “Liberation Day” hasn’t freed you from the burden of more questions or the pangs of uncertainty, you’re in good company.
Washington is now set to impose an expansive barrage of universal new tariffs on all imported foreign goods, inciting retaliatory countermeasures from US trading partners. What could go wrong?
Holding up a sort of sandwich board of rates on a windy Wednesday in the White House Rose Garden, Trump noted China’s punishment prominently at the top. “Reciprocal” tariffs of 34% now push total levies on Chinese goods to a staggering 54%.
While the European Union and many other Asian economies are among the worst-impacted by this deliberate hit, much remains in flux. Precisely how all this will rewire the world’s interconnected supply chains, disrupt business dynamics and play out for portfolios remains to be seen. Especially since we are already seeing realignments of trade partnerships away from the United States, we continue to emphasize the—now particularly significant—wisdom of diversification.
Limited direct hits
With some goods and economies relatively less impacted, investors are turning to single-country exchange-traded funds to tweak tactical exposures. Canada and Mexico, which were previously subject to separate tariffs, have found some relief in exemptions for United States-Mexico-Canada Agreement-compliant goods, especially given that “certain minerals” have escaped higher duties. Mexico’s President, Claudia Sheinbaum, who has displayed savvy in her prior negotiations with Trump, continues to adopt a cautious stance, stating that Mexico will respond with a “comprehensive program” rather than necessarily imposing reciprocal tariffs.
If Canada and Mexico can make further progress with the emergency fentanyl issue that Trump used to justify the tariffs, they may be folded into a separate tariff regime.
Other countries seeing minimal direct costs of tariffs include Brazil, Australia and the United Kingdom, the largest nations with which the United States has a trade surplus. Steel, aluminum and imports of oil, gas and refined products are also exempt from the new tariffs, which may aid select economies and sectors—Saudi oil, for example.
While Brazil still faces the challenge of taming its high public debt, its economy was strong and unemployment low through 2024, with robust domestic demand driving growth. Soybeans remain a pivotal crop in Brazil’s agricultural expansion, driving the country’s rise as a leading global supplier of farm products, but a recent historic shift has also seen Brazil’s cotton exports surpass those of the United States. Not surprisingly, China has been the main trade buyer for these products.
Stable foreign direct investment (FDI) inflows have also been a key driver for Brazil’s current account balance. In fact, Latin America’s largest economy is one of the world’s main recipient’s of FDI—the fifth largest globally with nearly US$66 billion in inflows in 2023.1 Its economic advantages also include vast natural resources as well as a large and young labor force.
Exhibit 1: Brazil’s Exports Help Power Growth
Semiconductor chips exempt from higher tariffs
Effective April 9, US-bound goods from Taiwan will be subject to a 32% import tax—a key exception being semiconductors, which are a complex tariff target due to their global and highly specialized supply chain. According to the announcement, reciprocal tariff rate calculations incorporated monetary tariffs, currency manipulation and trade barriers. Since no methodology has been published, this is difficult to verify, but blunt data suggests the approach may have been much more simplistic and crude, which may leave the door open for adjustments. Taiwanese officials have been quick to point to flaws in the calculations, and have pressed for immediate negotiations.
Thus far this year, the MSCI Taiwan Index is down nearly 9%—in correction territory2 but we believe this outcome is likely more a reflection of global uncertainty than the fundamentals of Taiwan’s current economy. The National Development Council of Taiwan has stated expectations for gross domestic product (GDP) to grow by 3.3% in 2025, driven by continued demand for artificial intelligence (AI) and other emerging technologies.3 The more moderate International Monetary Fund’s GDP forecast of 2.7% seems to take more heavily into consideration worries over global growth this year, but still positions Taiwan’s economy well ahead of most developed countries, and ahead of the G-7’s lackluster 1.7%.4
Exhibit 2: Taiwan’s Silicon Shield
Taiwan’s tech-driven economy relies heavily on exports to the United States. But exemptions or not, its semiconductor manufacturing capabilities still reign supreme. Taiwan currently holds a two-thirds share of the global foundry market, dwarfing second-ranked South Korea’s 10%. In the production of the most advanced chips, including those used to train AI applications such as large language models, Taiwanese firms maintain near-total domination on global supply, with a market share exceeding 90%.5 At the same time, the “most important company in the world of chips from Taiwan”—as Trump said during his Rose Garden speech—is diversifying production facilities overseas, not least for geopolitical reasons, with investment pledges of US$200 billion in the United States.
Nearly 70% of Taiwan’s index weighting is in the IT sector, but we would note that Taiwan’s benchmark exposure in global indexes constitutes just 1.8%—even as its economy and firms clearly punch above their weight.6
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically. To the extent a portfolio invests in a concentration of certain securities, regions or industries, it is subject to increased volatility.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.
Diversification does not guarantee a profit or protect against a loss.
ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.
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1. Source: World Investment Report 2024 published by UNCTAD.
2. Source: Bloomberg. As of April 3, 2025. The MSCI Taiwan Index is designed to measure the performance of the large and mid-cap segments of the Taiwan market. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.
3. Source: National Development Council, 2025.
4. Source: International Monetary Fund, 2025. There is no assurance any estimate, forecast or projection will be realized.
5. Sources: Wired.com, October 2024, and Counterpoint Research, March 2025.
6. Sources” Bloomberg, FTSE. As of March 31, 2025.
