The global economy is at a crossroads. Tariffs are reshaping trade flows, squeezing corporate margins, and fueling inflationary pressures. For investors, this environment demands a strategic shift: rotating into sectors that thrive amid rising prices while reducing exposure to trade-sensitive industries. Recent trade dynamics between Canada and Vietnam, alongside subtle shifts in the UK economy, underscore the need for tactical allocations to inflation-linked assets.

Tariffs, Trade, and the Inflation Conundrum

Tariffs are no longer just a political tool—they’ve become an economic multiplier. By diverting supply chains, raising input costs, and distorting trade flows, they’re creating winners and losers across sectors. The Canada-Vietnam trade relationship offers a microcosm of this dynamic.

Canada-Vietnam Trade: A Tale of Two Sectors

Vietnam’s exports to Canada surged to a record $10.6 billion in 2024, driven by machinery, computers, and agricultural goods. However, anti-dumping tariffs—such as a 37.4% duty on oil pipes and a 179.5% levy on upholstered chairs—highlight vulnerabilities in trade-sensitive sectors.

The energy and materials sectors, by contrast, are benefiting from tariff-driven inflation. Vietnam’s iron and steel exports to Canada, for instance, rose 30% in 2024 as Canadian firms sought alternatives to Chinese imports hit by tariffs. This underscores a broader theme: sectors with pricing power or exposure to commodities are better insulated from trade volatility.

The UK Economy: Growth Amid Hidden Strains

While the UK avoided a contraction in Q1 2025 (GDP grew 0.7%), underlying trends are worrisome. Real household disposable income (RHDI) fell 1.0% as rising taxes and energy costs eroded purchasing power. The household saving ratio dropped to 10.9%, signaling consumers are cutting back on non-essentials—a classic inflationary response.

This dynamic bodes well for energy utilities and consumer staples, which cater to inelastic demand. However, sectors like retail or travel, reliant on discretionary spending, face headwinds.

Inflation Reports: The Catalyst for Sector Rotation

Upcoming inflation data will be critical. If UK and Canadian core inflation (excluding volatile food and energy) remains elevated, central banks may delay easing policies, keeping bond yields elevated. This environment favors inflation-linked bonds (TIPS in the U.S., ILS in the UK) and commodity-linked equities, which offer natural hedges against rising prices.

Tactical Allocations: Where to Position Now

  1. Energy and Materials: Companies with exposure to oil, natural gas, and industrial metals—think Chevron (CVX) or BHP (BHP)—are positioned to benefit from tariff-driven supply bottlenecks and rising energy demand.
  2. Agricultural Producers: Vietnam’s surging exports of coffee, seafood, and fruits reflect growing demand for food commodities. Investors could consider ETFs like DBA (Invesco DB Agriculture Fund).
  3. Utilities: Regulated firms with inflation-indexed pricing, such as NextEra Energy (NEE), offer steady returns amid rising input costs.
  4. Short Trade-Sensitive Sectors: Reduce exposure to manufacturers (e.g., General Motors (GM)) and retailers (e.g., Walmart (WMT)) that face margin pressure from tariffs and rising input costs.

The Bottom Line

Tariffs are here to stay, reshaping trade and inflation dynamics. Investors must pivot toward sectors that can pass along costs or benefit from commodity scarcity. The data is clear: energy, materials, and utilities offer inflation resilience, while trade-sensitive industries face persistent headwinds. Stay nimble, focus on pricing power, and let tariffs work in your favor.

Disclosure: This article is for informational purposes only. Consult a financial advisor before making investment decisions.