Daily Voice: Investors should remain prepared for turbulence, as full economic ripple effects of tariffs still unfolding, says Whitespace Alpha's Puneet Sharma

The US faces significant structural and economic barriers to reshoring large-scale manufacturing, even with aggressive tariffs. Decades of globalization have entrenched complex supply chains that rely on international partners for cost efficiency and specialized expertise. While tariffs may incentivize some high-value industries like semiconductors or advanced manufacturing to establish domestic footholds, labour costs and workforce limitations remain critical hurdles.

Automation and robotics are increasingly replacing human labour in modern factories, reducing the job-creation potential of reshoring. Politically, tariffs generate headlines, but businesses are more likely to pivot toward "friend-shoring" to allies like Mexico or India rather than fully relocating to the US. This approach balances geopolitical priorities with economic pragmatism, avoiding the prohibitive costs of rebuilding entire supply chains domestically.

Do you believe tariff concerns would ease if the US and China resolve their trade dispute?

A resolution of immediate tariff disputes might calm short-term market anxieties, but deeper structural tensions between the US and China will persist. The rivalry extends far beyond tariffs to issues like technological supremacy, intellectual property disputes, and competing visions for global influence.

Even if tariffs are rolled back, non-tariff barriers—such as export controls on advanced technology or restrictions on foreign investments—will continue to strain relations. Markets could see temporary relief, but businesses are unlikely to reverse their shift toward diversifying supply chains away from China. Trust between the two nations has eroded, ensuring that strategic competition, rather than cooperation, will define the relationship for the foreseeable future.

Do you expect tariff issues to be resolved soon, possibly before the 90-day deadline?

Tariffs are less about resolution and more about maintaining leverage in prolonged negotiations. Historical patterns show that trade disputes involving tariffs—such as the US-China trade war during Trump’s first term—are rarely resolved quickly. Short-term agreements or temporary pauses might occur, but core issues like subsidies, intellectual property protections, and market access require sustained, complex dialogue.

The 90-day deadline is likely a political gesture rather than a binding timeline, designed to signal urgency without guaranteeing outcomes. Stakeholders should anticipate extended periods of uncertainty, punctuated by sporadic progress on narrow issues rather than sweeping solutions.

Has the market priced in the worst of the tariff impacts?

While markets have adjusted to the current tariff environment, they remain vulnerable to unexpected escalations. Equity valuations reflect a cautious optimism that tensions will remain contained, but sectors directly exposed to tariffs—such as automotive, technology, and agriculture—continue to experience volatility.

The potential for retaliatory measures, broader geopolitical conflicts, or sudden policy shifts (e.g., expanded tariffs on consumer goods) could trigger renewed disruptions. Bond markets, meanwhile, reflect growing concerns about inflationary pressures stemming from supply chain bottlenecks and rising production costs. Investors should remain prepared for turbulence, as the full economic ripple effects of tariffs are still unfolding.

Could the trade war accelerate de-dollarization?

De-dollarization is a gradual, long-term trend that may see incremental acceleration due to trade tensions, but a dramatic shift is unlikely. The US dollar’s dominance in global trade, commodity pricing, and financial systems remains deeply entrenched. However, tariffs and geopolitical friction have encouraged countries to explore alternatives, such as bilateral currency agreements or regional payment systems. For example, partnerships like BRICS are experimenting with non-dollar trade mechanisms, but these efforts lack the scale, liquidity, or institutional support to challenge the dollar’s hegemony meaningfully. While diversification efforts will continue, the dollar’s role as the world’s primary reserve currency is secure for the near future.

Which sectors are on your radar for FY26?

The evolving trade landscape creates opportunities and risks across sectors. Defense and aerospace are likely to benefit from increased government spending and the reshoring of strategic supply chains. Pharmaceuticals and specialty chemicals in countries like India could gain traction as Western nations reduce their reliance on Chinese inputs. Automation and AI-driven manufacturing will thrive as companies prioritize efficiency to offset tariff-related costs.

Conversely, consumer goods—particularly luxury items and autos—face risks from retaliatory tariffs and shifting demand. Green energy is a mixed bag: While global decarbonization efforts persist, reliance on Chinese components for solar panels or batteries may lead to policy-driven disruptions. Investors should focus on sectors with resilient supply chains and strategic alignment with geopolitical priorities.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.