Navigating Geopolitical Risk: Trump's Policies and the Case for Defensive Assets

Donald Trump's return to the White House in 2024 has reignited debates about the interplay between geopolitical risk and market volatility. His administration's aggressive tariff policies, unpredictable rhetoric, and “America First” agenda have created a landscape where investors must balance growth opportunities with defensive positioning. Historical patterns from his first term (2017–2021) and recent market reactions to his 2025 policies underscore the importance of resilient asset classes in mitigating uncertainty.

The Trump Effect: Tariffs, Volatility, and Sector Shifts

Trump's first term was marked by a 63.0% return for the S&P 500, driven by tax cuts and deregulationTrading Under Trump: Lessons from 2017-2021^[1]. However, this growth was uneven. Technology stocks thrived, while sectors like industrials and materials faced headwinds due to trade tensions. Tariffs on China, for instance, triggered retaliatory measures and supply chain disruptions, causing sharp selloffs in equity markets immediately after announcementsTrump Tariffs 2025 versus Trump Tariffs 2017 to ...^[2]. The Cboe Volatility Index (VIX) spiked during these periods, reflecting investor anxiety. By contrast, defensive sectors such as consumer staples and utilities showed relative resilience, with the Consumer Staples Select Sector SPDR ETF (XLP) underperforming the broader market by only 7% during the 2020 election uncertainty, compared to over 20% declines in tech and discretionary sectorsConsumer Staples and Utilities: Recession-Proof Sectors^[3].

The 2025 iteration of Trump's trade policies has amplified these dynamics. Tariffs on Canada, Mexico, and China—averaging 23%—have triggered the worst two-day loss in U.S. stock history, erasing $10 trillion in global equity valueEight charts that reveal the economic impact of Trump’s tariffs^[4]. Yet, as seen historically, markets often recover when policy uncertainty abates. For example, a dramatic pause in tariff implementation in April 2025 sparked a relief rally, illustrating the market's sensitivity to Trump's policy reversalsHow Equity Markets Reacted to Trump’s Tariff Announcements: The Data^[5].

Defensive Sectors: A Historical Safe Haven

Defensive assets have historically outperformed during Trump-era volatility. During his first term, gold surged 52.7%, while the U.S. dollar weakened by 9.0% amid Fed rate cutsTrading Under Trump: Lessons from 2017-2021^[1]. In 2025, this trend has continued: utilities ETFs (XLU) and consumer staples (XLP) have gained 3.10% and 4.44% year-to-date, respectively, while the S&P 500 (SPY) has declined by 1.57%Why Are Defensive Sectors Outperforming SPY? - ETF.com^[6]. These sectors benefit from inelastic demand for essentials like food, energy, and household goods, allowing them to pass cost increases to consumers without losing market share6 ETFs That May Be Recession-Proof - Investopedia^[7].

The shift toward defensive positioning has been pronounced in recent months. In the 7 days leading up to Trump's September 2025 UN speech, utilities ETFs saw $3.78 billion in inflows, while gold ETFs attracted $3.2 billion in July 2025 aloneGold ETF Holdings & Inflows^[8]. By contrast, high-beta sectors like technology and industrials have faced outflows, with the Magnificent Seven dropping 6.7% following April 2025 tariff announcementsHow Equity Markets Reacted to Trump’s Tariff Announcements: The Data^[5].

Geopolitical Risk and Global Economic Realignments

Trump's policies have forced nations to rethink trade dependencies. The UN now forecasts global growth at 2.4% for 2025, down 0.4 percentage points from earlier projections, with China's growth slowing to 4.6% due to tariff-driven export declinesUN forecasts slower global economic growth | AP News^[9]. Developing economies, including Brazil and Mexico, face weakened trade and falling commodity prices, compounding their vulnerabilitiesUN forecasts slower global economic growth | AP News^[9]. This realignment mirrors the Smoot-Hawley Tariff Act of 1930, which exacerbated the Great Depression through retaliatory measuresTrump’s Economic Disruption: The World Adapts^[10].

Investors must also consider the role of safe-haven assets. Treasuries have seen inflows during Trump's trade wars, with JPMorgan estimating a 60% chance of a global recession without policy resolutionETF Flows: Where Investors Put Their Money Amid Market Volatility^[11]. Gold, meanwhile, has maintained its allure, with physically backed ETFs attracting $3.2 billion in July 2025Gold ETF Holdings & Inflows^[8].

Strategic Positioning Ahead of the UN Speech

Given the historical and current patterns, a defensive tilt appears prudent. Here are key recommendations:
1. Consumer Staples and Utilities: These sectors offer stable cash flows and dividend yields. XLP and XLU have historically outperformed during Trump-era volatilityConsumer Staples and Utilities: Recession-Proof Sectors^[3]Why Are Defensive Sectors Outperforming SPY? - ETF.com^[6].
2. Gold and Treasuries: Safe-haven assets like SPDR Gold Shares (GLD) and iShares 20+ Year Treasury Bond ETF (TLT) provide inflation and geopolitical risk hedgingGold ETF Holdings & Inflows^[8]ETF Flows: Where Investors Put Their Money Amid Market Volatility^[11].
3. Healthcare: While not as defensive as staples or utilities, healthcare's inelastic demand makes it a resilient play during economic uncertainty6 ETFs That May Be Recession-Proof - Investopedia^[7].

The upcoming UN speech on September 19, 2025, will likely test these strategies. Trump's rhetoric has historically driven sharp market swings, with the VIX spiking during high-uncertainty eventsTrump Tariffs 2025 versus Trump Tariffs 2017 to ...^[2]. Investors should monitor fund flows into defensive ETFs in the days following the speech, as they will signal whether markets perceive the address as a risk-off or risk-on catalyst.

Conclusion

Trump's policies have consistently introduced volatility, but history shows that defensive sectors and safe-haven assets can mitigate downside risks. As the UN speech approaches, investors should prioritize resilience over growth, leveraging historical patterns to navigate an unpredictable geopolitical landscape.