JP Morgan’s chief global strategist warns that a blanket 10% Trump tariffs could derail the US economy. A 25% tariff might lead to severe economic fallout.
The tariffs would drive inflation up by a full percentage point. Canadian unemployment rates could jump from 6.7% to 10%. The stock market exposure makes this particularly concerning. One-third of Canadians have stock market investments, and S&P 500 companies get 28% of their revenue from international sales. This creates significant portfolio risks across the board.
Your investments can still be protected. Market swings may be unavoidable, but some sectors stand strong during trade disputes. Consumer staples, healthcare, and companies focused on domestic markets have proven their resilience when trade tensions rise. We’ve put together 7 tested strategies that can help protect your portfolio from tariff effects in 2025.
Defensive Consumer Staples Stocks as Tariff Shields
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Consumer staples stocks act as a strong shield against trade tensions. Their non-cyclical nature and steady demand patterns make them particularly resilient. Companies that sell essential items like food, consumer products, and basic clothing have shown remarkable stability even in uncertain economic times.
Best Consumer Staples Companies for Tariff Protection
Companies with strong domestic operations lead the pack in tariff protection. Procter & Gamble, Keurig Dr Pepper, Coca-Cola, and PepsiCo have performed better than market averages during trade tensions. These companies succeed because they:
- Run local production facilities that reduce import exposure
- Have brands that customers trust and stay loyal to
- See steady demand no matter the economic conditions
- Own well-established distribution networks
Consumer Staples Pricing Power Analysis
Pricing power is a vital advantage during trade conflicts. Soft drinks and non-alcoholic beverages makers maintain strong pricing power because generic alternatives can’t compete effectively. Food and medicine industries also show exceptional resilience. Customers will buy these necessities whatever the price changes might be.
Notwithstanding that, some challenges remain. A typical U.S. household might lose about $1,200 in yearly purchasing power due to tariffs. Consumer staples companies’ thin margins make it hard to absorb these tariffs.
Dividend Potential During Trade Wars
Consumer staples stocks shine when it comes to dividends, especially during trade tensions. The sector’s average dividend yield stands at 2.8%, which beats the S&P 500’s 1.5% yield. Many of these companies are Dividend Achievers – they’ve raised their dividend payouts every year for at least 10 years straight.
To cite an instance, PepsiCo offers a 3.1% dividend yield, higher than its 10-year average of 2.8%. Hormel has increased its dividends annually for 58 years, with a current yield of 3.5%. These dividend features make consumer staples attractive to investors who want steady income during trade uncertainties.
The sector’s track record during tough times adds to its appeal. During the 2008 financial crisis, consumer staples came out on top. The sector fell by just 15% while others took bigger hits: financials dropped 55%, materials lost 44%, and technology declined 41%.
Strategic Shift to Domestic-Focused Companies
Image Source: Boston Consulting Group
Many investors now target domestic-focused companies to protect against Trump’s proposed tariffs. U.S. companies with little overseas exposure have become more attractive as a way to protect investment portfolios from trade tensions.
Identifying Pure-Play Domestic Stocks
Online advertising platforms and cloud software companies make excellent candidates for tariff protection. Salesforce gets 70% of its revenue from Americas and just 10% from Asia-Pacific. Workday shows strong U.S. focus with 75% of its revenue coming from domestic operations. These companies can grow without getting caught in international trade disputes.
Small Cap Advantage in Trade Wars
Small and mid-cap stocks look promising during trade tensions. The numbers tell an interesting story – only 38% of Russell 2500 companies depend on overseas buyers for more than 10% of their sales. This is much lower than the 66% seen in S&P 500 companies. Small companies naturally handle tariffs better because of their domestic focus.
Regional Bank Opportunities
Regional banks have become attractive investments as trade uncertainties continue. These banks succeed because they have:
- Strong loan portfolios with 45% fixed-rate loans
- Securities portfolios that make up 10-20% of earning assets
- Good regulatory conditions in specific states
Banks like U.S. Bancorp and Truist Financial show solid growth in average loans and deposits. The sector looks promising with analysts raising earnings estimates by 6% for 2024.
Local Utility Companies as Safe Havens
Local utilities provide great defensive options during trade tensions. They offer an average dividend yield of 4%, which beats the S&P 500’s overall dividend yield of 1.6%. High-quality utilities include Michigan’s DTE Energy and CMS Energy, Wisconsin’s Alliant Energy, and Texas’ CenterPoint Energy.
Utility companies thrive because they have:
- Regulated business environments that limit competition
- Cash flows you can count on to pay dividends
- Services people just need to use
These companies work in specific regions with favorable regulations, which helps them avoid international trade pressures. Their focus on infrastructure and domestic operations naturally protects them from tariff effects.
Bond Portfolio Adjustments for Tariff Protection
Image Source: Morningstar
Bond markets help defend against market volatility caused by tariffs. The Bloomberg Municipal Bond Index showed a 6.4% return for the year. This beat the Bloomberg 1-3 Month US Treasury Bill Index’s after-tax return of 3.1%.
Municipal Bonds as Trade War Defense
Municipal bonds have become a safe place to park money during trade tensions. More professional investors choose these instruments as economic uncertainty grows. These bonds are attractive because they:
- Generate tax-free income
- Have low default rates historically
- Benefit from strong state finances
- Offer better yield potential
Right now, municipal issuers are in their best financial shape in decades. Most states have prepared well for possible economic slowdowns. A small 50-basis-point drop in Treasury yields could boost municipal bond prices by about 2%. This might lead to total returns close to 5%.
Treasury Inflation Protected Securities (TIPS) Strategy
TIPS are a vital shield against inflation risks from tariffs. The bond market sees inflation risks differently than the Federal Reserve. We see this mainly because of worries about the incoming administration’s policies. Investors looking for inflation protection might find TIPS especially valuable now as yields adjust to economic uncertainty.
Short Duration vs Long Duration Positioning
Short-duration bonds have beaten intermediate bonds in market environments of all types. The yield curve scenarios tell us more:
Short-duration bonds work best when:
- The yield curve inverts
- Markets stay flat
- Things get volatile
Core bonds tend to do better during long periods of steep yield curves. A 50/50 mix of short-term bonds and the Bloomberg U.S. Aggregate Index has historically given better returns. This blend also cut risk compared to traditional allocations.
Today’s market needs careful thought. The Federal Reserve plans rate cuts in September and December, with more cuts every quarter through 2025. Investors must choose between keeping cash or going longer on duration. Short-term instruments now offer better carry during inverted yield curves. This helps protect against possible losses.
The best approach might be to extend duration by moving cash into high-quality intermediate fixed income securities. History supports this move. U.S. 10-year Treasury yields typically fall by 107 basis points on average between the last rate hike and first cut.
Real Estate Investment Trusts (REITs) as Safety Net
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REITs are a great defensive play against potential Trump tariffs. This is a big deal as it means that only 13% of REIT revenue comes from overseas operations. REITs rank among the least trade-sensitive sectors in the market because of their minimal international exposure.
Residential REITs Benefits
Residential REITs provide strong protection when market volatility hits due to tariffs. These investments get a boost when construction costs rise because tariffs on steel and lumber make new property development more expensive. Higher costs increase existing property values and make renters think twice about buying homes.
Residential REITs keep their strong pricing power through:
- Long-term leases with built-in inflation protection
- Short-term leases that adjust to current market rates
- Properties spread across different lease terms
Healthcare REIT Opportunities
Healthcare REITs show exceptional strength in today’s market and have promising demographic trends backing them up. The number of Americans aged 65 and older will jump from 52 million in 2018 to 95 million by 2060. These REITs have proven their worth with retention rates above 90%.
The numbers tell the story of the sector’s resilience. Welltower managed to keep an industry-leading same-store occupancy rate of nearly 95%, while other commercial real estate sectors lagged behind. Healthcare REITs also saw a 2% year-over-year increase in same-store net operating income, showing they can deliver stable returns even in uncertain markets.
Self-Storage REIT Advantages
Self-storage REITs stand out because they resist recessions well. People just need storage space for many reasons:
- When buying or selling homes
- During life changes (marriage, divorce, retirement)
- To support work-from-home setups
- For seasonal storage
The sector’s performance speaks for itself. Self-storage emerged as the top performer among 13 public equity REIT property sectors, with a total return of 13.3%. On top of that, these REITs maintain disciplined balance sheets – 84.5% of their debt is fixed rate and 93.7% is unsecured.
Infrastructure Stock Opportunities
Image Source: Morningstar
Trump’s proposed tariffs have altered the map of infrastructure investments. These changes bring both challenges and opportunities to the engineering and construction sector.
Construction Materials Companies
Proposed tariffs could push material costs up by 7.5% for construction projects, which might increase total construction budgets by 3-4%. U.S. construction materials come mostly from China, Canada, and Mexico, accounting for 46% of the total. This situation gives companies focused on domestic production a competitive edge.
Different materials face varying effects:
- Steel and aluminum remain under close watch
- Softwood lumber prices could rise by a lot
- Electrical components might see price swings
- Concrete and asphalt materials need adjustments
The construction industry shows strong performance. Its nominal value added grew by 10% while gross output rose by 12% in 2024. Material prices have cooled down lately, but the sector keeps watch over possible cost pressures from tariffs.
Engineering and Construction Firms
Trade uncertainties have pushed engineering firms to adapt their strategies. The sector’s workforce reached 8.3 million in July 2024, beating the previous record of 7.7 million from 2006. This growth continues despite ongoing challenges.
Government investments have pushed the Dodge Momentum Index, which tracks nonresidential building spending, steadily upward. Federal funding has boosted engineering firms, with 1,326 new recipients getting $2.15 billion from Infrastructure Investment and Jobs Act commitments in 2023.
Domestic Infrastructure Projects
Government initiatives provide strong support for infrastructure development. The Infrastructure Investment and Jobs Act puts $1.2 trillion toward improving power grid strength, mass transit, broadband, and water systems. The Inflation Reduction Act offers up to $660 billion in tax incentives for domestic energy production.
Global infrastructure stock stands at $48 trillion, offering huge opportunities. Projects that focus on environmentally responsible infrastructure and construction methods gain traction as worldwide construction values are set to grow from $10.2 trillion in 2020 to $15.2 trillion by 2030.
Labor shortages remain the biggest problem, with 382,000 job openings monthly between August 2023 and July 2024. Data center construction creates about 1,700 local construction jobs over 18-24 months. Companies that invest in workforce development and embrace technology put themselves in a better position for future growth.
Healthcare Sector Defensive Positioning
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The healthcare sector serves as a strategic defensive play amid rising trade tensions. The U.S. medical equipment market, valued at USD 197.80 billion in 2023, shows promising growth potential reaching USD 305.10 billion by 2033.
Large Cap Healthcare Leaders
Large-cap healthcare companies show remarkable resilience because of their essential service status and regulated business environment. These organizations maintain strong pricing power through tariff pressures by leveraging:
- FDA-regulated market entry barriers
- Medicare and Medicaid reimbursement structures
- Veteran Affairs pricing controls
- Proven supply chain networks
Biotechnology Opportunities
Chinese venture-capital funds invested USD 1.40 billion in U.S. biotech and drug companies during the first quarter. This creates unique challenges for biotechnology firms. Early-stage pharmaceutical startups have benefited from Chinese investment and resources, but current trade tensions bring both risks and opportunities.
Biotech companies adapt to potential disruptions by:
- Building stronger domestic R&D capabilities
- Broadening funding sources
- Adding more clinical trial locations
- Improving intellectual property protection
Healthcare Services Companies
Healthcare services providers expect cost increases of 15% within six months due to rising import expenses. Pharmaceutical costs could rise by 10% from China tariff effects on active pharmaceutical ingredients. Service providers have started implementing cost management strategies.
WELL Health Technologies reports no significant tariff threats to its operations, with over 60% of revenues in U.S. dollars. This gives them natural currency protection against trade-related volatility.
Medical Device Manufacturers
Tariffs could affect 75% of U.S.-marketed devices, creating substantial challenges for medical device manufacturers. 69% of available U.S.-marketed devices come from overseas manufacturers. The sector adapts through:
Abbott, Becton Dickinson, GE HealthCare Technologies, and Medtronic run plants in Mexico. This creates complex supply chain considerations. The industry seeks tariff exemptions actively and points to potential supply chain disruptions that could affect patient care.
The healthcare sector grows stronger in its defensive position as companies respond strategically to tariff pressures. Medical technology suppliers push for exemptions, like those granted during previous trade tensions. This helps protect the U.S. hospital supply chain and maintains leadership in the medical technology sector.
Gold and Precious Metals Allocation
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Precious metals are vital portfolio safeguards as trade tensions rise. Gold prices hit an unprecedented USD 2700.00 per ounce in October 2024. Gold has shown its strength through various crises and serves as a protective shield for wealth.
Physical Gold vs Gold Stocks
Physical gold ownership brings unique benefits during economic uncertainty. Having actual platinum, silver, or gold bars and coins removes contractual risk. The metal keeps its inherent value, unlike paper currencies that can lose worth from inflation or economic turmoil.
Gold’s resilience became clear during the 2008 recession when stock markets crashed. Today’s investors who managed to keep physical gold feel more secure during market volatility. Notwithstanding that, owning physical gold needs secure storage and is nowhere near as liquid as other investments.
Mining Company Evaluation
Mining stocks offer a more volatile but potentially lucrative option. The VanEck Gold Miners ETF, which holds major positions in Newmont Corp., Agnico Eagle Mines, and Barrick Gold, has jumped 18% in 2025. These stocks trade at just 12 times 2025 earnings estimates, below their 5-year average of 15.
Foreign central banks substantially affect mining companies’ performance. Poland, Turkey, India, and China have become major gold buyers. This trend helps mining stocks, which now trade at a 45% discount to the S&P 500, deeper than their typical 20% discount.
Precious Metals ETF Options
ETFs let investors access precious metals without storage worries. These instruments come in three types:
- Direct commodity holdings
- Derivative-based tracking
- Mining company investments
Popular choices include SPDR Gold Trust (GLD) with USD 76.50 billion AUM and iShares Gold Trust (IAU) managing USD 34.70 billion. SPDR Gold MiniShares Trust (GLDM) is an economical solution with a 0.10% expense ratio.
Gold ETFs’ performance as safe havens shows mixed results. Research shows gold dropped with stocks in 17% of monthly stock market falls. This means gold worked as protection 83% of the time during market downturns.
The precious metals market shows strong fundamentals beyond gold. Silver prices have risen 14% this year. Its industrial uses in medical technology, solar panels, and nuclear reactors improve its appeal. Financial advisors usually suggest a 5% to 10% allocation to precious metals to diversify portfolios.
Comparison Table
| Investment Strategy | Key Benefits | Performance Metrics | Risk Factors | Notable Examples | Recommended Allocation |
|---|---|---|---|---|---|
| Defensive Consumer Staples | – Products people always need – Consistent customer base – Ability to set competitive prices | – Led other sectors during 2008 crisis (-15% while others fell -41% to -55%) – Yields 2.8% average dividends | – Slim profit margins – Struggles with tariff costs | – Procter & Gamble – Keurig Dr Pepper – Coca-Cola – PepsiCo | Not mentioned |
| Domestic-Focused Companies | – Minimal overseas risk – Natural protection from tariffs | – Small caps: 38% have overseas exposure above 10% compared to 66% for S&P 500 | – Growth limited to domestic markets | – Salesforce (70% Americas revenue) – Workday (75% US revenue) – Regional banks – Local utilities | Not mentioned |
| Bond Portfolio | – Municipal bonds offer tax-free income – TIPS protect against inflation – Less market swings | – Municipal bonds return 6.4% – Expected total returns near 5% | – Interest rate changes – Yield curve shifts | – Municipal bonds – TIPS – Short-duration bonds | 50/50 mix of short-term and aggregate bonds |
| REITs | – Only 13% revenue from overseas – Strong market position – Guards against inflation | – Self-storage REITs deliver 13.3% total returns – Healthcare REITs keep 90%+ tenants | – Sensitive to interest rates – Property market risks | – Welltower (95% occupancy) – Healthcare REITs – Self-storage REITs | Not mentioned |
| Infrastructure Stocks | – Backed by government funds – Solid industry basics | – 10% rise in nominal value – 12% increase in gross output | – Material costs up 7.5% – Worker shortages | – Construction materials companies – Engineering firms | Not mentioned |
| Healthcare Sector | – Critical services – Strict regulations – Price setting ability | – Market grows from $197.8B (2023) to $305.1B (2033) | – Costs expected to rise 15% – Supply chain issues | – Abbott – Becton Dickinson – GE HealthCare – Medtronic | Not mentioned |
| Gold & Precious Metals | – Shields during market crisis – Protection from inflation – Balances portfolio risk | – Gold reaches $2700/oz (Oct 2024) – Mining stocks climb 18% in 2025 | – Price swings – Physical storage expenses – 17% link to stock market drops | – SPDR Gold Trust – iShares Gold Trust – VanEck Gold Miners ETF | 5-10% of portfolio |
Conclusion
Seven investment strategies can shield your portfolio from Trump’s potential tariffs in 2025. Consumer staples and healthcare sectors have proven their resilience when economic uncertainty strikes. Small-caps and regional banks naturally protect investments from international trade pressures because they focus on domestic markets.
Your bond portfolio can effectively hedge against inflation risks from tariffs, especially with municipal bonds and TIPS. REITs show their strength through minimal exposure overseas and strong pricing power. Infrastructure stocks thrive on government funding support. Gold and precious metals complete your defensive strategy, with a typical 5-10% allocation in portfolios.
You’ll get better results by mixing multiple strategies instead of using just one protective measure. Smart investors should review their portfolio’s exposure to international markets. They can then add these protective strategies based on their risk tolerance and investment goals.
Markets will stay uncertain, but these proven approaches help protect investment portfolios from trade war effects. A well-diversified portfolio with carefully selected strategies creates reliable defense against market swings while keeping growth opportunities open.