Limit exposure
Although importers and exporters are on the front lines of this trade war, the impact is likely to reverberate across the whole economy. Fewer sales of Kentucky bourbon could prompt distilleries to lay off workers who are then less inclined to purchase cars, renovate homes or take vacations.
U.S. job losses hit a 16-year high in February, according to a report by Challenger, Gray & Christmas. Consequently, economists at J.P. Morgan Chase have raised their probability of a recession to 40%.
Although an economic downturn isn’t guaranteed, you could consider limiting exposure to industries that are exposed to tariffs, such as auto parts and retail.
Boosting your cash position and moving to high-yield Treasuries could also limit downside risks in your portfolio. Warren Buffett certainly seems to be taking that approach with over $318 billion in cash and cash equivalents on Berkshire Hathaway’s balance sheet at the end of 2024.
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Learn MoreBet on domestic substitutes
In theory, a surcharge on imported goods should benefit domestic suppliers. So, if electricity sourced from Ontario faces a 25% hike, domestic utility company Xcel Energy Inc. (XEL) should stand to benefit. The Minnesota-based firm has 3.9 million electric customers across eight states. The stock is up 2.6% year-to-date, while the S&P 500 is down 5.12% over the same period.
However, the benefits of protectionism for some of these companies could be offset by declining consumer sentiment and industrial production in other parts of the economy.
An additional kilowatt of electricity consumed by someone who relies on Ontario’s energy exports could be offset by less electricity consumed by a worker who was laid off from the local beer factory because of Ontario’s import restrictions.
Safe haven
Many investors turn to gold as a safe haven during times of turmoil and uncertainty. The price of an ounce of gold is up 13% over the past six months, which indicates that this rush to safety is already underway.
If the trade war continues, or intensifies, investors could hedge against the risk with some gold exposure in their portfolio.
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