Trade War Damage Control Trumps Victory, Economist Soumaya Keynes Argues
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
trade-wargeopolitics
Fazen Markets Editorial Desk
Collective editorial team · methodology
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In a recent Bloomberg interview, Financial Times columnist Soumaya Keynes reshaped the discourse around modern trade conflicts. The coauthor of "How to Win a Trade War" argued that policymakers should abandon the aim of decisively winning trade wars. Instead, the primary objective must be to minimize economic damage. This strategic pivot comes as global goods trade growth has slowed to an estimated 1.7% for 2026, down from its 4.9% pre-pandemic decade average. The immediate focus for markets is identifying which sectors and assets are positioned for relative gains amid persistent friction.
Current trade tensions are not a singular event but a structural shift. The global macro backdrop is defined by higher-for-longer interest rates, with the U.S. 10-year Treasury yield stabilizing around 4.2%. This environment magnifies the cost of supply chain disruptions and tariffs, which act as a tax on economic activity. The catalyst for Keynes's commentary is the evolution of trade conflicts from binary disputes to multi-front, layered economic statecraft. The period from 2018-2024 saw the U.S. impose tariffs on over $350 billion of Chinese goods. The European Union initiated its own anti-subsidy investigations into Chinese electric vehicles in late 2023. These actions have moved beyond simple retaliation to encompass export controls, investment screening, and subsidies for domestic industries. The new phase is characterized by managed competition rather than a quest for total victory.
The measurable impact of this shift is evident across trade and investment flows. Global foreign direct investment (FDI) flows declined by 18% in 2025 to an estimated $1.2 trillion. Investment into China from advanced economies fell by 34% from its 2021 peak. Concurrently, U.S. goods imports from Mexico and Vietnam have risen by 48% and 127%, respectively, since 2018, illustrating supply chain diversification. The cost of this realignment is tangible. The U.S. International Trade Commission estimated in 2023 that the tariffs imposed from 2018 onward resulted in a 0.2% reduction in real GDP and a 0.1% increase in the price level. For comparison, the S&P 500 Index has returned 8.2% year-to-date, partly insulated by the domestic focus of its largest constituents.
| Metric | Pre-2018 Trend (Avg.) | 2025-2026 Level | Change |
|---|---|---|---|
| Global Trade Growth | 4.9% | 1.7% | -3.2 ppt |
| U.S. Imports from China | ~21% of total | ~14% of total | -7 ppt |
| U.S. Import Tariff Rate | 1.5% (2017) | 3.4% (2025) | +1.9 ppt |
Second-order effects create clear sectoral winners and losers. Companies facilitating near-shoring, like industrial real estate firm Prologis (PLD), and logistics providers stand to gain. Semiconductor capital equipment makers, such as Applied Materials (AMAT), benefit from global capacity expansion outside concentrated regions. Conversely, multinationals with complex, entrenched supply chains in contested regions face persistent margin pressure. The auto sector, especially European manufacturers like Volkswagen (VWAGY), is exposed to retaliatory tariffs. A key risk to this analysis is that escalating protectionism could become a net negative for all sectors by stifling innovation and raising input costs universally. Market positioning shows institutional capital rotating into domestic industrial and infrastructure ETFs, while short interest has increased in consumer discretionary stocks with high import exposure. Flow data indicates a preference for quality balance sheets with pricing power to pass on tariff costs.
The immediate catalyst is the conclusion of the U.S. review of Section 301 tariffs, expected by July 2026. The EU's provisional decision on Chinese EV tariffs is due by November 2026. Levels to watch include the Baltic Dry Index for global shipping demand and the U.S. goods trade deficit. If the deficit narrows significantly while domestic manufacturing PMI remains above 50, it would signal successful onshoring. Should the 10-year Treasury yield break above 4.5% amid tariff-induced inflation concerns, risk assets would face a dual headwind. The direction of the U.S. dollar index (DXY) will indicate whether markets view the U.S. as a relative safe haven or a source of trade volatility.
Retail investors should assess portfolio exposure to import-dependent consumer staples and discretionary companies. Sectors less tied to global supply chains, such as utilities, regional banking, and certain healthcare services, may offer relative stability. Investors can monitor the earnings calls of multinational corporations for mentions of "tariff costs" and "supply chain diversification" as leading indicators of margin pressure or strategic adaptation. The performance of domestic small-cap indices versus large-cap multinationals is another key relative gauge.
The 1980s conflict was largely bilateral and focused on specific industries like automobiles and semiconductors, resulting in voluntary export restraints. Today's tensions are multilateral, involving technology decoupling, and are embedded within broader geopolitical competition. The U.S. trade deficit with Japan peaked at around $60 billion in 1987. The goods trade deficit with China was over $350 billion in 2023, indicating a larger scale. The modern conflict uses tools like entity lists and chip export bans, which were not deployed in the 1980s.
Friend-shoring is the practice of relocating supply chains to politically allied nations. It is measured by shifts in bilateral trade and investment flows. Key metrics include the year-over-year growth rate of FDI between allied nations, such as U.S. investment into the EU or Japan. Trade data from the U.S. Census Bureau shows imports from Mexico overtook those from China in 2023, a concrete example. The rise of trade agreements like the U.S.-EU Trade and Technology Council is an institutional marker of this trend. For more on supply chain strategies, see our analysis on fazen.markets.
The optimal market strategy now hedges against fragmentation by favoring assets linked to regional supply chains over those dependent on smooth globalization.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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