Trump's August Trade Moves: How Tariffs Could Reshape Risk Premiums and Sector Performance

As August 2025 approaches, the global investment community is bracing for a pivotal moment in U.S. trade policy. President Trump's recent agreements with key partners—including the EU, Japan, and China—have locked in elevated tariffs, while his rhetoric hints at further escalations. These moves, framed as a defense of American manufacturing and a rebuke of “unfair” trade practices, are poised to reshape risk premiums and sector performance in both equities and commodities.

The Tariff Tightrope: Certainty vs. Cost

Trump's trade agreements have delivered a delicate balance: tariffs are higher than pre-2021 levels but lower than the 30% threats initially floated. For example, the EU now faces 15% tariffs on goods, while Japan's rate stands at the same level. This middle ground offers businesses a degree of certainty, which historically has helped markets stabilize. During Trump's first term, the SPDR S&P 500 ETF Trust (SPY) often rebounded after initial jitters from executive orders, particularly post-2020, as investors recalibrated to the administration's pro-industry agenda.

Yet the economic drag from higher tariffs is undeniable. The average U.S. household faces a $2,400 income loss in 2025 due to inflated import costs, with downstream effects on inflation. While current data shows no immediate spike in prices, analysts warn that the waning ability of importers to absorb costs could trigger a late-2025 surge. This uncertainty is already manifesting in higher risk premiums, particularly in sectors sensitive to trade flows.

Sector Winners and Losers: A Tale of Two Markets

Equities:
The energy and industrial sectors are likely to benefit from Trump's “America First” policies. Historical patterns from 2017–2021 show that pro-industry executive orders drove gains in energy ETFs like the Energy Fund (DBE) and base metals funds. With tariffs on raw materials and manufacturing goods now entrenched, investors should monitor stocks in steel, semiconductors, and aerospace. Conversely, consumer discretionary sectors—particularly those reliant on imported goods—could face margin pressures. Retailers and automakers may see reduced earnings as input costs rise.

Commodities:
Energy and base metals remain prime beneficiaries. The Energy Fund (DBE) and Base Metals Fund (DBB) are expected to outperform, mirroring their post-2020 rebound under Trump's first term. However, the agriculture sector (DBA) faces a mixed outlook. While U.S. farmers may gain from reduced foreign competition, export-dependent commodities like soybeans could suffer if retaliatory tariffs emerge.

Pharmaceuticals: A Looming Storm
One of Trump's most contentious proposals—a 200% tariff on foreign-made drugs—could disrupt the sector. While the administration claims this will curb drug prices, the reality may involve shortages and price spikes. Investors in pharmaceutical ETFs should consider hedging with precious metals (DBP), which historically act as volatility buffers.

Strategic Adjustments for Investors

1. Sector Rotation: Shift allocations toward energy, industrials, and defense stocks, which align with Trump's policy priorities. Reduce exposure to consumer discretionary and retail sectors.
2. Commodity Hedges: Overweight energy and base metals ETFs. For pharmaceutical investors, pair positions with gold or silver to mitigate risk.
3. Volatility Readiness: Maintain a cash buffer to capitalize on potential market dips triggered by inflation concerns or geopolitical tensions.

The Road Ahead

Trump's August announcements are not the end of the story. The administration's potential raise of the universal tariff to 15% and the looming decision on pharmaceutical tariffs could further amplify market volatility. Investors must stay attuned to these developments, using historical patterns as a guide while remaining agile in the face of new uncertainties.

In a world where trade policy is increasingly weaponized, the key to navigating volatility lies in understanding the interplay between tariffs, sector dynamics, and global supply chains. For now, the market's response will hinge on whether Trump's “America First” agenda proves to be a tailwind for certain industries—or a headwind for the broader economy.