Investing.com – President-elect Donald Trump will begin his term with aggressive trade measures, BCA Research said, potentially announcing a 10% global tariff or targeted tariffs of up to 25% on Canada, Mexico and 10% on China within his mandate. first week.
“The tariffs will be the big news in the first day or week, and we expect President Trump to get away with it,” the company said in a Thursday report.
“We expect him to be aggressive because now is his greatest period of political capital and influence over other countries. “The U.S. labor market is strong, global manufacturing is weak, and the midterm elections are 22 months away,” he added.
BCA anticipates that these tariffs will cause immediate price increases, disrupt global manufacturing, and potentially lead to a deflationary pullback in the long term.
At the same time, Trump’s tax cuts (estimated at $4.2 trillion over a decade) are expected to inflate the budget deficit and fuel inflationary pressures, keeping Treasury yields elevated. BCA highlights a 52 basis point increase since the election, underscoring expectations of expanding budget deficits under Republican leadership.
In turn, this will likely keep rates high longer and the dollar strong, BCA said in its report.
The dollar has recovered 7% from its lowest point last year, and BCA strategists recommend remaining long the currency until the tariff announcements are fully priced in. However, the company warns that “if tariffs disappoint expectations, then the dollar will fall,” and any setback could occur once initial market reactions stabilize.
Oil markets have also responded strongly, up 7% since the election and 17% from their 2024 low. This rally aligns with current geopolitical tensions, particularly between Israel and Iran, which BCA believes are likely will increase.
Additionally, Trump’s application of new sanctions on Russia and China, including controls on semiconductor exports, may further boost energy prices.
However, the stock is expected to face near-term volatility. The combination of rising Treasury yields and uncertainty over Trump’s tariff strategy may weigh on markets, particularly as supply chain disruptions take hold.
BCA advises positioning for greater volatility while favoring defensive sectors such as aerospace and defense.
He also recommends maintaining a long position in US small-cap stocks versus their global peers.