Changes in US tariff policy, risks in the Middle East: what are the consequences for the markets?

After the U.S. Supreme Court struck down the use of the Emergency Economic Powers Act (IEEPA) to impose import tariffs, President Donald Trump invoked Section 122 of the 1974 Trade Act to institute a new blanket tariff for 150 days. Initially set at 10% by executive order, this tariff was later raised to 15% via an announcement on social media. It takes effect at the 10% rate on February 24, 2026.

Certain categories of goods will retain their previous exemptions, and most trade with selected countries, including Canada and Mexico, is also excluded. Despite short-term tariff uncertainty, we anticipate a decrease in the effective tariff rate from 14.5% to 12.5%, depending on future developments. We expect a limited impact on markets and maintain our pro-risk investment strategy.

Despite short-term tariff uncertainty, we anticipate a decrease in the effective tariff rate from 14.5% to 12.5%, depending on future developments.

Countries subject to US tariffs of 15%, such as the European Union, Switzerland, and Japan, are expected to see little change in their effective rates, and we therefore anticipate a limited impact on these markets in the short term. Stock markets in countries that have previously benefited from lower rates, such as the UK, could face greater volatility, depending on whether both sides maintain the current 10% trade agreement.

Some emerging markets with higher base tariffs could benefit. Brazil, for example, had a 50% tariff imposed. China could also see a slight reduction in its effective tariff rate (a base rate of 10% plus the 10% levy imposed due to the country’s inability to stem the flow of fentanyl and other drugs into the United States).

Ultimately, the economic gains or losses specific to each country will depend on the evolution of existing bilateral agreements and the willingness of governments to renegotiate them. President Trump has stated that he expects existing agreements to remain in place, but there is no certainty as to the willingness of countries to push for revisions. The trade policy environment will remain uncertain, with likely changes at the country level and potentially at the sector level. We are closely monitoring developments.

Some emerging markets with higher basic tariffs could benefit from this

Sectoral implications

A new 15% global tariff is not expected to lead to major changes for specific sectors. Exemptions for energy, pharmaceuticals, critical minerals, and aerospace remain in place, as do exclusions for certain imports from key trading partners such as Taiwan, South Korea, and Japan (including non-advanced semiconductors and aerospace components), as well as for goods covered by Section 232 (steel, copper, automobiles, and advanced semiconductors) and goods originating under the USMCA (Canada-United States-Mexico Agreement). All other goods will be subject to the 15% tariff announced today. Some sectors that benefited from the initial announcement of a 10% universal tariff, such as luxury goods, may adjust in the coming days.

In equity markets, our investment strategy focuses on the healthcare, utilities, and materials sectors. Regionally, we favor Japanese equities following Prime Minister Sanae Takaichi’s landslide election victory. We maintain our overweight position in emerging market equities given their resilience and strong fundamentals, with a preference for South Korea, as well as South Africa, China, and India. South Korea and South Africa retain their superior earnings momentum, supported by significant investments in AI infrastructure and firm precious metals prices. The evolving tariff environment could also improve investor confidence in South Africa, which was previously subject to a 30% tariff. India, which faced US tariffs of 50% until the signing of a trade agreement on February 2 that reduced them to 18%, is benefiting from this recent lowering of trade barriers, an accelerating cyclical pattern, and improved market sentiment. Meanwhile, the slight improvement in tariffs applicable to China could attract more investor attention, amid attractive equity returns, rapid development of AI capabilities and an expected profit recovery in 2026.

The slight improvement in tariffs applicable to China could attract more investor attention.

Portfolio diversification remains essential.

We maintain a moderately risk-averse stance in our portfolios, along with an overweight position in equities through our emerging market exposures. Despite recent concerns about AI and tariff uncertainty, economic growth remains stable , and global leading indicators suggest further expansion. A trend toward neutral or more accommodative monetary policy and supportive fiscal policies remains in place in many major economies. Corporate earnings are still generally solid, with 2026 expectations remaining robust or undergoing upward revisions. Finally, the investors’ neutral positioning does not reflect excessive exuberance or complacency. That said, we do not anticipate linear equity gains from current levels, which reinforces the need to maintain well-diversified portfolios .

We also expect further developments in the tariff environment. Over the long term, less favorable tariffs specific to certain countries could be reintroduced under different legal frameworks, and additional measures could be imposed on certain sectors and countries. This is why we anticipate some short-term volatility in the stock markets.

Investors are also focusing on geopolitics, and more specifically on developments in the Middle East, where the situation remains highly unstable and tensions are high. In this context, we reiterate the importance of ensuring proper portfolio diversification.

For multi-asset portfolios, we continue to favor income sources such as emerging market bonds. Despite recent equity market volatility driven by technology stocks, this asset class has demonstrated resilience, likely due to its limited direct exposure to the sector. Emerging market bond performance should continue to be supported by high yields and, consequently, strong capital inflows. We maintain our overweight position in gold and believe that commodities will retain their portfolio diversification benefits, both in the event of positive economic surprises, such as anticipated trade activity in the base case scenario, and in the event of supply disruptions in the risk scenario, namely escalating tensions. For eligible investors, alternative asset classes, such as hedge funds , which can implement uncorrelated strategies, offer the potential to add different sources of performance to multi-asset portfolios.

We maintain our overweight position in gold and believe that commodities will retain their portfolio diversification benefits.

The Supreme Court’s decision is expected to lead to a slight depreciation of the US dollar and a moderate rise in US Treasury yields. The performance of these yields will be driven by market expectations of budget revenue shortfalls resulting from tariff refund claims. However, these refund processes are expected to be lengthy, which should minimize their impact on US Treasury yields.

The geopolitical situation in the Middle East is more critical for the dollar and Treasury bonds. In the event of US strikes against Iran , the risk scenario would see the dollar strengthen and US Treasury yields fall due to the repatriation of assets by American investors and increased demand for safe-haven assets. Any escalation of tensions would lead to higher oil prices, fueling inflation expectations, and US Treasury Inflation-Protected Securities (TIPS) could thus outperform other government bonds.