Discover what the Trump administration’s tariffs could mean for key equity sectors and how investors can navigate the risks and opportunities.
As the Trump administration continues to implement its tariff agenda, global markets are feeling the effects, with sell-offs occurring as investors grapple with the implications of a rapidly evolving trade landscape. Understanding these changes is crucial for navigating the risks and opportunities.
Here are four things investors should know.
The White House is simultaneously proposing and enacting sweeping, country-specific tariffs. Most notably, these include:
We can see the market impact of country-specific tariffs when reviewing the Morgan Stanley Institutional Equity Division Tariff Risk Index, a basket of stocks with high sensitivity to increased tariffs on China and Mexico. As of March 6, relative to the S&P 500 Index, China and Mexico tariff-exposed stocks had sold off about 22% and 10%, respectively, since March 2024 and had declined by 12% and 10%, respectively, since Trump took office in January 2025.
The technology, materials, energy and industrials sectors, with foreign revenue exposure as high as 57%, are particularly exposed to tariffs. For example, recent tariffs targeting aluminum and steel could place a drag on the materials sector, and China-specific tariffs or retaliation efforts could have secondary impacts for tech. Should the tariff regime escalate further, Morgan Stanley’s Global Investment Office expects the utilities and health care sectors to outperform due to their defensive nature and low tariff exposure.
Markets are likely to quickly price tariff-related risks to a particular sector, industry or stock. Steel and solar products offer a compelling illustration: In January 2018, Trump imposed tariffs on solar panels and washing machines of 30% to 50%. In March 2018, he imposed tariffs of 25% on steel and 10% on aluminum from most countries. Following these measures, industries impacted by the tariffs underperformed: Both the MAC Global Solar Energy Index and the NYSE Arca Steel Index declined by more than 11% in the first six months following the tariffs’ enactment. In February 2025, Trump announced additional tariffs of 25% on steel and aluminum. While the tariffs are expected to go into effect in March 2025, the NYSE Arca Steel Index has already declined roughly 5% and has been volatile since the president’s announcement.1
If a robust and long-lasting universal tariff regime comes to fruition, defensive U.S. stocks, such as those in utilities, health care or consumer staples, may outperform cyclical sectors like industrials or consumer discretionary, which may be more vulnerable to increased import costs and reduced international trade. In such an environment, stock-picking becomes more prudent. Among consumer discretionary stocks, for example, investors could see increased variability in returns between companies with stronger pricing power and the ability to absorb tariffs, and those without. Additionally, consumer discretionary companies with greater reliance on revenues generated from lower-income consumers will likely experience the most pressure, as higher prices weigh more heavily on the purchasing power of those with less to spend. On the other hand, if some tariff risks are avoided and prove mostly benign, cyclicals may outperform defensives.
Areas such as software, cybersecurity, defense tech and large-cap financials, some of which have lower foreign revenue exposure, are less likely to feel the impact of tariffs; they may benefit in tandem from the momentum behind AI adoption. Furthermore, utilities have low tariff exposure and may serve as a defensive leader should broad-based tariffs increase market pressure.
Promoting U.S. industry protectionism and prioritizing national security are likely to remain two of the most steadfast drivers for the use of tariffs in foreign policy. This means that select tariffs on global goods, and specific countries, like China, are likely to increase before they decline, and perhaps last longer. By contrast, further tariffs on allies and U.S. trade partners with deeply integrated supply chains, such as Mexico and Canada, may be avoided through concessions.
Your Morgan Stanley Financial Advisor can help you navigate the complexities of investing in a rapidly changing global trade environment. To learn more, ask your Morgan Stanley Financial Advisor for a copy of the report US Policy Pulse: Trump’s Tariff Agenda. Listen to the audiocast based on this report.
Footnotes
1 There is no comparable index dedicated to aluminum companies.
Index Definitions
For index, indicator and survey definitions referenced in this report please visit the following: www.morganstanley.com/wealth-investmentsolutions/wmir-definitions
Risk Considerations
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.
Investing in foreign markets entails greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. Investing in currency involves additional special risks such as credit, interest rate fluctuations, derivative investment risk, and domestic and foreign inflation rates, which can be volatile and may be less liquid than other securities and more sensitive to the effect of varied economic conditions. In addition, international investing entails greater risk, as well as greater potential rewards compared to U.S. investing. These risks include political and economic uncertainties of foreign countries as well as the risk of currency fluctuations. These risks are magnified in countries with emerging markets and frontier markets, since these countries may have relatively unstable governments and less established markets and economies.
Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations.
Value investing does not guarantee a profit or eliminate risk. Not all companies whose stocks are considered to be value stocks are able to turn their business around or successfully employ corrective strategies which would result in stock prices that do not rise as initially expected.
Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies. Technology stocks may be especially volatile. Risks applicable to companies in the energy and natural resources sectors include commodity pricing risk, supply and demand risk, depletion risk and exploration risk. Health care sector stocks are subject to government regulation, as well as government approval of products and services, which can significantly impact price and availability, and which can also be significantly affected by rapid obsolescence and patent expirations.
Environmental, Social and Governance (“ESG”) investments in a portfolio may experience performance that is lower or higher than a portfolio not employing such practices. Portfolios with ESG restrictions and strategies as well as ESG investments may not be able to take advantage of the same opportunities or market trends as portfolios where ESG criteria is not applied. There are inconsistent ESG definitions and criteria within the industry, as well as multiple ESG ratings providers that provide ESG ratings of the same subject companies and/or securities that vary among the providers. Certain issuers of investments may have differing and inconsistent views concerning ESG criteria where the ESG claims made in offering documents or other literature may overstate ESG impact. ESG designations are as of the date of this material, and no assurance is provided that the underlying assets have maintained or will maintain and such designation or any stated ESG compliance. As a result, it is difficult to compare ESG investment products or to evaluate an ESG investment product in comparison to one that does not focus on ESG. Investors should also independently consider whether the ESG investment product meets their own ESG objectives or criteria. There is no assurance that an ESG investing strategy or techniques employed will be successful. Past performance is not a guarantee or a dependable measure of future results.
The indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. The indices are not subject to expenses or fees and are often comprised of securities and other investment instruments the liquidity of which is not restricted. A particular investment product may consist of securities significantly different than those in any index referred to herein. Comparing an investment to a particular index may be of limited use.
The indices selected by Morgan Stanley Wealth Management to measure performance are representative of broad asset classes. Morgan Stanley Wealth Management retains the right to change representative indices at any time.
Performance of indices may be more or less volatile than any investment product. The risk of loss in value of a specific investment (such as with an investment manager or in a fund) is not the same as the risk of loss in a broad market index. Therefore, the historical returns of an index will not be the same as the historical returns of a particular investment product.
Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. Past performance is not necessarily a guide to future performance.
The author(s) (if any authors are noted) principally responsible for the preparation of this material receive compensation based upon various factors, including quality and accuracy of their work, firm revenues (including trading and capital markets revenues), client feedback and competitive factors. Morgan Stanley Wealth Management is involved in many businesses that may relate to companies, securities or instruments mentioned in this material.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any security/instrument, or to participate in any trading strategy. Any such offer would be made only after a prospective investor had completed its own independent investigation of the securities, instruments or transactions, and received all information it required to make its own investment decision, including, where applicable, a review of any offering circular or memorandum describing such security or instrument. That information would contain material information not contained herein and to which prospective participants are referred. This material is based on public information as of the specified date, and may be stale thereafter. We have no obligation to tell you when information herein may change. We make no representation or warranty with respect to the accuracy or completeness of this material. Morgan Stanley Wealth Management has no obligation to provide updated information on the securities/instruments mentioned herein.
The summary at the beginning of the report may have been generated with the assistance of artificial intelligence (AI).
The securities/instruments discussed in this material may not be appropriate for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Wealth Management recommends that investors independently evaluate specific investments and strategies, and encourages investors to seek the advice of a financial advisor. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies and other issuers or other factors. Estimates of future performance are based on assumptions that may not be realized. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Morgan Stanley Wealth Management does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein.
This material should not be viewed as advice or recommendations with respect to asset allocation or any particular investment. This information is not intended to, and should not, form a primary basis for any investment decisions that you may make. Morgan Stanley Wealth Management is not acting as a fiduciary under either the Employee Retirement Income Security Act of 1974, as amended or under section 4975 of the Internal Revenue Code of 1986 as amended in providing this material except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/dol.
Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors do not provide legal or tax advice. Each client should always consult his/her personal tax and/or legal advisor for information concerning his/her individual situation and to learn about any potential tax or other implications that may result from acting on a particular recommendation.
This material may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm has not reviewed the linked site. Equally, except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of Morgan Stanley Wealth Management) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through the material or the website of the firm shall be at your own risk and we shall have no liability arising out of, or in connection with, any such referenced website.
By providing links to third-party websites or online publication(s) or article(s), Morgan Stanley Smith Barney LLC (“Morgan Stanley”) is not implying an affiliation, sponsorship, endorsement, approval, investigation, verification with the third parties or that any monitoring is being done by Morgan Stanley of any information contained within the articles or websites. Morgan Stanley is not responsible for the information contained on the third-party websites or your use of or inability to use such site. Nor do we guarantee their accuracy and completeness. The terms, conditions, and privacy policy of any third-party website may be different from those applicable to your use of any Morgan Stanley website. The information and data provided by the third-party websites or publications are as of the date when they were written and subject to change without notice.
This material is disseminated in Australia to “retail clients” within the meaning of the Australian Corporations Act by Morgan Stanley Wealth Management Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813).
Morgan Stanley Wealth Management is not incorporated under the People's Republic of China ("PRC") law and the material in relation to this report is conducted outside the PRC. This report will be distributed only upon request of a specific recipient. This report does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors must have the relevant qualifications to invest in such securities and must be responsible for obtaining all relevant approvals, licenses, verifications and or registrations from PRC's relevant governmental authorities.
If your financial adviser is based in Australia, Switzerland or the United Kingdom, then please be aware that this report is being distributed by the Morgan Stanley entity where your financial adviser is located, as follows: Australia: Morgan Stanley Wealth Management Australia Pty Ltd (ABN 19 009 145 555, AFSL No. 240813); Switzerland: Morgan Stanley (Switzerland) AG regulated by the Swiss Financial Market Supervisory Authority; or United Kingdom: Morgan Stanley Private Wealth Management Ltd, authorized and regulated by the Financial Conduct Authority, approves for the purposes of section 21 of the Financial Services and Markets Act 2000 this material for distribution in the United Kingdom.
Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the “Municipal Advisor Rule”) and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of the Municipal Advisor Rule.
This material is disseminated in the United States of America by Morgan Stanley Smith Barney LLC.
Third-party data providers make no warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data.
This material, or any portion thereof, may not be reprinted, sold or redistributed without the written consent of Morgan Stanley Smith Barney LLC.
© 2025 Morgan Stanley Smith Barney LLC. Member SIPC.
CRC# 4308688 (03/2025)
