Navigating the Crosscurrents: Trade Policy Uncertainty and Resilient Sectors in 2025

The U.S. consumer is feeling the pinch. The University of Michigan's May 2025 Consumer Sentiment Index closed at 52.2, a 24.5% year-over-year decline and the lowest reading since 2022. Persistent trade policy uncertainty, stagnant wages, and inflation fears have created a fragile economic backdrop. Yet, amid the gloom, certain sectors are proving resilient—and offer clues for investors seeking to position for recovery.

The Sentiment Slump and Its Drivers

Consumer pessimism is anchored in two existential fears: inflation and unemployment. Year-ahead inflation expectations hit a 1981 peak of 7.3% in May before easing slightly to 6.6% in June. Meanwhile, 66% of respondents anticipate higher joblessness—the highest since the 2008 crisis. Trade policy uncertainty, particularly around tariffs on Chinese goods, has amplified these anxieties. Over 75% of consumers cited tariffs as a concern, believing they would fuel inflation.

While a temporary tariff pause in May provided modest relief, the effective U.S. tariff rate on imports remains historically high. The Federal Reserve, though holding rates steady at 4.25-4.5%, has labeled trade impacts as “transitory”—a stance at odds with households. This disconnect is critical: the Kansas City Fed notes that sentiment declines have not yet dented spending forecasts, suggesting consumers are prioritizing essentials over discretionary purchases.

Sectors That Defy the Downturn

The current environment rewards companies and industries insulated from consumer spending volatility and trade shocks. Here are the key sectors and regions proving resilient:

1. Technology and Deregulated Industries (U.S.)

Despite regulatory headwinds, U.S. tech firms are thriving. Deregulation efforts and industrial policies are driving factory construction and innovation, with sectors like semiconductors and cloud infrastructure benefiting from long-term demand.
While tech stocks remain volatile, structural tailwinds—including AI adoption and supply chain reshoring—suggest this is a sector to watch.

2. Manufacturing and Energy (Mexico and Argentina)

Mexico's manufacturing sector is rebounding, fueled by rising oil and gas production from the Vaca Muerta basin and foreign direct investment in lithium and renewables. Meanwhile, Argentina's agricultural recovery and post-drought export surpluses have stabilized its economy.

Both countries are leveraging fiscal reforms and regulatory clarity to attract capital, making energy and industrial equities compelling plays.

3. Services and Government Spending (Euro Area)

Europe's services sector—less reliant on trade-sensitive manufacturing—is outperforming. Government spending on defense and inflation-mitigation measures has provided a floor. The European Central Bank's rate cuts have further eased financing costs for businesses.

4. Housing and Consumer Staples (Canada)

Canada's housing market is reviving as lower interest rates lure buyers back. Consumer staples remain robust, buoyed by a consumption tax holiday and stable inflation. A weaker Canadian dollar also boosts export competitiveness.

Recovery Strategies: Where to Deploy Capital

The path to recovery hinges on resolving policy uncertainties and accelerating structural reforms. Investors should prioritize sectors and regions with:
- Policy clarity: The U.S. tech sector benefits from tax policy extensions and trade mitigation strategies like tariff frontloading.
- Inflation resilience: Energy and manufacturing in Mexico and Argentina offer exposure to commodity demand and fiscal discipline.
- Diversification: Europe's services sector and Canada's housing recovery highlight opportunities in less trade-exposed areas.

Investment Takeaways

• Tech and Infrastructure: Allocate to U.S. tech stocks (e.g., semiconductor leaders) and global infrastructure funds tied to renewable energy projects.
• Commodities and Materials: Consider ETFs tracking lithium, copper, or oil—key inputs for manufacturing and energy transitions.
• Geographic Diversification: Look beyond the U.S. to Mexico (energy), Canada (housing), and Colombia (agriculture and public projects).

The Bottom Line

Consumer sentiment may remain volatile, but sectors insulated from trade shocks and positioned for structural growth offer a roadmap for cautious optimism. As trade policy clarity emerges and inflation moderates, investors should favor industries with pricing power, geographic diversity, and exposure to long-term trends like decarbonization and digitization. The key is to stay nimble—this recovery will reward those who bet on resilience, not sentiment.

Data as of June 2025.