‘If US President Donald Trump’s so-called “Liberation Day” hasn’t freed you from the burden of more questions or the pangs of uncertainty, you’re in good company’ says Dina Ting, Head of Global Index Portfolio Management, Franklin Templeton Exchange-Traded Funds, as she shares her latest analysis on the impacts of the trade turmoil particularly for emerging economies.
Washington is now set to impose an expansive barrage of universal new tariffs on all imported foreign goods, inciting retaliatory countermeasures from US trading partners. What could go wrong? Holding up a sort of sandwich board of rates on a windy Wednesday in the White House Rose Garden, Trump noted China’s punishment prominently at the top. “Reciprocal” tariffs of 34% now push total levies on Chinese goods to a staggering 54%.
While the European Union and many other Asian economies are among the worst-impacted by this deliberate hit, much remains in flux. Precisely how all this will rewire the world’s interconnected supply chains, disrupt business dynamics and play out for portfolios remains to be seen. Especially since we are already seeing realignments of trade partnerships away from the United States, we continue to emphasize the—now particularly significant—wisdom of diversification.
Limited direct hits
With some goods and economies relatively less impacted, investors are turning to single-country exchange-traded funds to tweak tactical exposures. Canada and Mexico, which were previously subject to separate tariffs, have found some relief in exemptions for United States-Mexico-Canada Agreement-compliant goods, especially given that “certain minerals” have escaped higher duties. Mexico’s President, Claudia Sheinbaum, who has displayed savvy in her prior negotiations with Trump, continues to adopt a cautious stance, stating that Mexico will respond with a “comprehensive program” rather than necessarily imposing reciprocal tariffs.
If Canada and Mexico can make further progress with the emergency fentanyl issue that Trump used to justify the tariffs, they may be folded into a separate tariff regime.
Other countries seeing minimal direct costs of tariffs include Brazil, Australia and the United Kingdom, the largest nations with which the United States has a trade surplus. Steel, aluminum and imports of oil, gas and refined products are also exempt from the new tariffs, which may aid select economies and sectors—Saudi oil, for example.
While Brazil still faces the challenge of taming its high public debt, its economy was strong and unemployment low through 2024, with robust domestic demand driving growth. Soybeans remain a pivotal crop in Brazil’s agricultural expansion, driving the country’s rise as a leading global supplier of farm products, but a recent historic shift has also seen Brazil’s cotton exports surpass those of the United States. Not surprisingly, China has been the main trade buyer for these products.
Stable foreign direct investment (FDI) inflows have also been a key driver for Brazil’s current account balance. In fact, Latin America’s largest economy is one of the world’s main recipients of FDI—the fifth largest globally with nearly US$66 billion in inflows in 2023.1 Its economic advantages also include vast natural resources as well as a large and young labor force.
Exhibit 1: Brazil’s Exports Help Power Growth
Sources: USDA, FactSet, MSCI.
Semiconductor chips exempt from higher tariffs
Effective April 9, US-bound goods from Taiwan will be subject to a 32% import tax—a key exception being semiconductors, which are a complex tariff target due to their global and highly specialized supply chain. According to the announcement, reciprocal tariff rate calculations incorporated monetary tariffs, currency manipulation and trade barriers. Since no methodology has been published, this is difficult to verify, but blunt data suggests the approach may have been much more simplistic and crude, which may leave the door open for adjustments. Taiwanese officials have been quick to point to flaws in the calculations, and have pressed for immediate negotiations.
Thus far this year, the MSCI Taiwan Index is down nearly 9%—in correction territory2 but we believe this outcome is likely more a reflection of global uncertainty than the fundamentals of Taiwan’s current economy. The National Development Council of Taiwan has stated expectations for gross domestic product (GDP) to grow by 3.3% in 2025, driven by continued demand for artificial intelligence (AI) and other emerging technologies.3 The more moderate International Monetary Fund’s GDP forecast of 2.7% seems to take more heavily into consideration worries over global growth this year, but still positions Taiwan’s economy well ahead of most developed countries, and ahead of the G-7’s lackluster 1.7%.
Exhibit 2: Taiwan’s Silicon Shield
Sources: CIA World Factbook, IMF Data Mapper, Statistica, Taipei Representative Office in Singapore, FTSE, Alphaliner. 2025.
Taiwan’s tech-driven economy relies heavily on exports to the United States. But exemptions or not, its semiconductor manufacturing capabilities still reign supreme. Taiwan currently holds a two-thirds share of the global foundry market, dwarfing second-ranked South Korea’s 10%. In the production of the most advanced chips, including those used to train AI applications such as large language models, Taiwanese firms maintain near-total domination on global supply, with a market share exceeding 90%.5 At the same time, the “most important company in the world of chips from Taiwan”—as Trump said during his Rose Garden speech—is diversifying production facilities overseas, not least for geopolitical reasons, with investment pledges of US$200 billion in the United States.
Nearly 70% of Taiwan’s index weighting is in the IT sector, but we would note that Taiwan’s benchmark exposure in global indexes constitutes just 1.8%—even as its economy and firms clearly punch above their weight.6
