Tariffs as a Catalyst: Finding Value in Undervalued Sectors Amid Global Trade Shifts

The global trade landscape is undergoing seismic shifts, driven by a wave of tariffs and reciprocal measures that have intensified since 2024. As the U.S. raises barriers on imports from China, the EU, and others, investors are faced with both challenges and opportunities. Amid this turmoil, certain sectors are being unfairly penalized—or remain overlooked—creating fertile ground for strategic investments in undervalued assets. Here's how to navigate this new era of trade volatility.

The Tariff Landscape: Winners and Losers

Recent U.S. tariff policies have targeted key industries, with baseline rates rising to 15–20% by July 2025 and sector-specific measures reaching as high as 34% (China) and 200% (pharmaceuticals). These policies are designed to protect national security interests and incentivize reshoring, but they've also created ripple effects across equity markets.

Critical Minerals and Semiconductors: A Strategic Play

The U.S. has imposed tariffs on imported critical minerals (e.g., tungsten, rare earths) and semiconductors to bolster domestic production. This has hit Chinese and Vietnamese suppliers hard but presents a long-term opportunity in U.S. firms positioned to fill the gap.

Investors should consider companies like Freeport-McMoRan (FCX), which supplies copper and molybdenum, or Albemarle (ALB), a lithium leader. These stocks have lagged amid global supply chain disruptions but could rebound as tariffs drive demand for domestic sources.

Pharmaceuticals: Navigating the 200% Tariff Threat

The U.S. has threatened 200% tariffs on foreign pharmaceuticals to pressure companies to shift production domestically. While the market has yet to fully price in this risk, it creates an opportunity in U.S.-based drug manufacturers with strong domestic manufacturing capacity.

Companies like Pfizer or Merck (MRK) could benefit if tariffs force competitors to increase U.S. investments, reducing overcapacity and stabilizing prices.

Aerospace and Defense: Riding Exemptions

The U.S. has exempted UK aerospace products under WTO agreements, shielding firms like Boeing (BA) and Lockheed Martin (LMT) from the worst of the reciprocal tariffs. This creates a structural advantage for these companies, which can now focus on high-margin international contracts without added cost pressures.

The UK-U.S. Economic Prosperity Deal, effective July 9, 2025, could further solidify this sector's position.

USMCA-Compliant Firms: A Safe Harbor

The U.S.-Mexico-Canada Agreement (USMCA) exempts compliant firms from tariffs. Canadian and Mexican companies like Magna International (MGA) (automotive) and Tecnored (TCEHY) (steel) are undervalued but poised to benefit as investors rediscover their tariff-free advantages.

The Undervalued Sectors Playbook

1. Buy the Dip in Critical Sectors: Tariffs have created short-term volatility, but sectors like semiconductors and critical minerals are undervalued relative to their long-term strategic importance.
2. Focus on Geopolitical Winners: Companies benefiting from exemptions (e.g., UK aerospace, USMCA participants) are underappreciated by the market.
3. Avoid Overexposure to Retaliatory Markets: China's retaliatory tariffs on U.S. agricultural goods and energy stocks (e.g., Exxon Mobil (XOM)) may persist, making these sectors riskier.

Risks and Considerations

• Legal Uncertainty: The U.S. Court of International Trade's stay on “fentanyl” tariffs (pending appeal) adds volatility. Investors should monitor rulings that could reverse tariff impacts.
• Geopolitical Shifts: Tariffs are tools of leverage, not permanent policy. Diplomatic breakthroughs (e.g., revised trade deals) could abruptly change sector dynamics.

Conclusion

Tariffs are reshaping global trade, but they're also creating asymmetric opportunities. Investors who identify sectors unfairly punished by policy changes—or those benefiting from exemptions—can position themselves to profit as markets adjust. Critical minerals, USMCA-compliant firms, and aerospace leaders are today's undervalued gems. As the dust settles, these sectors could emerge as the cornerstones of post-tariff growth.

Stay agile, and let the tariffs work for you.