Tariffs will be top of mind for investors going into 2025

Global trade will soften next year but won’t collapse in the face of protectionist threats, says Corrado Tiralongo, chief investment officer and vice-president of asset allocation with Canada Life Investment Management.

Speaking this week on the Soundbites podcast, Tiralongo said incoming U.S. President Donald Trump’s plan to introduce new tariffs on goods coming into the U.S. will likely lead to negotiations, exclusions and accommodations that will blunt the impact.

“The warnings about a spiral into global trade war are overdone,” he said. “They’ll likely get watered down. But I think the headline news is going to be scary. It’s going to be at top-of-mind for many investors.”

Ultimately, he said barriers make for “bad economic policy” with a wide range of potential outcomes, including damage to the economy and currency of the country imposing them.

“The way that we need to think about these tariffs is the intent of them,” he said. “Are the tariffs a bargaining chip? Or are they a measure to increase government revenues or protect domestic industry? The intent absolutely matters.”

Tiralongo said the U.S. election has created an element of uncertainty, but there are economic bright spots as we move into 2025, including falling interest rates, regional investment prospects and continued growth on the artificial intelligence (AI) theme — even if valuations on that front are high.

“Growth is still positive, globally,” he said. “We just need to look past the headlines.”

Geopolitical upheaval is unlikely to upset the macro story, Tiralongo said.

“We think investors and commentators are overestimating the impact of one-off events,” he said. “The way we think about it is that geopolitics is going to dominate the headlines in 2025. But the macro consequences will be misunderstood.”

Tiralongo cited the concern in 2024 about the closure of the some of the world’s most important shipping routes due to the ongoing conflict in the Middle East.

“The anticipated snarl-up of global supply chains failed to materialize,” he pointed out. Similarly, oil prices did not skyrocket as predicted.

“2025 is going to be another year where geopolitical shifts and shocks are going to occur. But I think the consensus is going to misjudge the fallout,” he said.

Among other themes taking shape, he anticipates growing fiscal concern could constrain governments around the world, seeing how budget deficits are larger than they were prior to the pandemic.

“I don’t think that governments per se are concerned about their fiscal deficits. I think taxpayers are. If we look at the public finances of major economies, they’re frankly a mess,” he said.

“So, budget deficits are a concern post-pandemic, but they’re going to matter only when the bond market feels that they matter. It’s going to be very important for governments and how they signal fiscal responsibility to the bond market.”

As far as equities go, Tiralongo believes U.S. equities will likely be “the fastest horse in 2025,” but investors shouldn’t put all their eggs in one basket.

“There are compelling valuations outside of U.S. growth and technology stocks, but we don’t think they’ll get the attention of investors until the AI bubble has run its course,” he said. “For instance, small cap, value, et cetera, are at probably their lowest decile levels, relative to their historical valuations.”

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.