The emerging market (EM) outlook is clouded by US policy uncertainty, with tariffs threatening to re-wire the global trading system.

What is clear is that following the Trump administration’s 2 April trade review, EMs will face higher tariffs. 

We expect that reciprocal and sectoral tariffs will be the primary levers. But there is a risk that the US assessment of non-tariff barriers and VAT rebates for exporters could be used to justify sharply higher tariffs, pushing up trade barriers erratically, and introducing significant variation in the shock faced across EMs. 

EMs will have some scope to make trade deals, while lowering their own tariffs on US imports offers a route to limit reciprocal tariffs. Few countries will be willing to reduce protections on politically sensitive industries, such as agriculture, however. 

Mexico and emerging Asia stand out as most vulnerable, relative to the commodity exporters in Latin America or parts of emerging Europe. But, while the recent volatility of trade actions against Mexico and Canada has been hard to look past, ultimately these countries are likely to be the biggest reshoring ‘winners’ as actions against China ramp up. 

Growth dynamics are already mixed, and near-term investment is likely to be constrained by trade uncertainty. Market pressure could add to EM central bank caution but slowing activity and the ongoing easing of underlying inflationary pressure suggest that EM central banks will resume their easing cycle. 

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