(L-R) India's Prime Minister Narendra Modi and US President Donald Trump during the latter's first term. Credit: White House/Flickr
US President Donald Trump's latest targeted trade policy has added further layers of uncertainty to financial markets, especially emerging markets, as investors digest another round of potential tariffs.
Trump's pronouncement today (13 January) that he will impose a new 25 % levy on goods coming into America from any country he deems to being 'doing business' with Iran, once again puts two of the world's most closely watched economies and markets on alert: China and India.
Oil price soars as Trump threatens 25% tariffs on Iran's trading partners
The move is Trump's attempt to put pressure on the Iranian government to end its violent attempts to smother the nation-wide protests going on against those in power, which have reportedly seen hundreds killed and thousands more arrested.
Since the infamous Rose Garden speech last April, during which Trump raised the prospect of large punitive tariffs on many countries including those two, he and his trade negotiators had moved to significantly more accommodating positions.
As deals were struck and positions softened, markets boomed in the second half of the year and investors became comfortable with the situation while rate cuts came through.
As 2026 gets going, Trump's tactic of using tariffs as a political 'negotiation tool' has reared its head again and investors are on alert for the fallout.
The president did not name India and China specifically as targets as it is a blanket tariff, but data from the World Bank shows that they would be heavily impacted as they are two of the main buyers of Iranian oil.
Will Mcintosh-Whyte, fund manager on Rathbones' multi-asset portfolios, said: "The markets have taken Trump's latest tariff threat in their stride, with the news so far limited to one social media post.
"The action is very much in-line with Trump's playbook of applying pressure on other countries through threats and tariffs to achieve his strategic goals," he said.
"It is therefore credible as a near‑term negotiation tool - even if its scope, coverage, and enforceability may be adjusted.
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Mcintosh-Whyte added that with China being Iran's largest trading partner, this adds a further element of complexity to an already tense trade truce between the two.
"While we saw a major escalation last year, subsequent to this both sides have signalled a preference for de-escalation, being keen to avoid mutual economic damage," he continued. "The latest threat from Trump cuts across this, for now, it seems unlikely to upend this preference to avoid mutually destructive actions.
"What is clear is the US will be looking to escalate pressure on the Iranian regime, and that brings with it risks of further unrest in the Middle East, and potential tail risks. While we remain constructive on risk assets, it serves as a reminder to ensure portfolios remain diversified, using tools such as currency, commodities and put options to protect against more left field social media posts or escalating geopolitical risk."
James Flintoft, head of investment solutions at AJ Bell, said: "Investments in emerging markets give a risk premium to account for this sort of headline, as they do for internal political machinations.
"For us in the West, it is a much more visible risk when Trump grandstands on an issue, but equity markets are pricing this latest announcement as yet another storm in a teacup.
"The latest Trump tariff does however reaffirm the movement towards a multi-polar world and the threats to global supply chains. This wider theme could pose greater long-term inflation uncertainty, which needs to be carefully watched by bond markets."
Flintoff added that if we look at this in conjunction with the actions in Venezuela and threats to US defence companies over the past week, it is clear there is a strategic priority to have greater control over the US supply chain, even if it comes at the cost of higher prices.
"In this instance, if we see solid policy action rather than a social media post, those trading with Iran may feel some pain," he continued. "However, they are already more adversarial with the US and have been the subject of plenty of tariff jibes in the past year."
Susannah Streeter, chief investment strategist at Wealth Club, added: ‘'More onerous trade restrictions are for now the weapon of choice of the US administration, to put pressure on Iran's regime, but options for military action are still being weighed up.
"Tariffs are Trump's well-worn modus operandi, and there's expectation he will follow through to some extent. But as we have seen before, heavy tariffs do not always stick around for long, and are often temporary negotiating tactics. Oil prices are still well below the average over the past 12 months. A strike on Iran's regime would prompt another big spike in volatility."
