• Analysts from Fidelity International highlight how companies with pricing power, particularly in sectors like information technology, consumer staples, healthcare, and industrials, may better manage tariff-induced cost pressures. However, weak demand in certain sub-sectors, like luxury goods, could constrain pricing power. 
• Analysts suggest that shifting production locations might mitigate some tariff costs, though this could lead to further inflationary pressures, such as labour shortages.  
• Companies in developed markets may be more affected by trade tensions than those in regions like Asia Pacific and China, where analysts report more positive or neutral effects from changing policies. 

The topic of trade war looks set to dominate analyses for the remainder of 2025, dividing the corporate world into those who are bracing for it and those looking to jump on opportunities.

Investors will naturally want to identify who is who, taking account of second-order and relative effects, while also staying mindful of the macroeconomic context.

Cost inflation fears vary by region

The bottom-up view from Fidelity International’s analysts shows regional divergence when it comes to cost inflation expectations, echoing our overall mid-year outlook. 

For example, 53 per cent of North America analysts expect moderate cost inflation increases, an expectation that’s also shared by a majority of Japan and EMEA/Latin America-focused analysts.

Elsewhere though, while a fair number predict greater inflationary pressures in the cost bases of the companies they cover, most analysts globally expect those pressures will stay the same or decrease.

One factor that could keep rising costs in check is a decline in oil prices.

“OPEC+ are reinstating their supply faster than had previously been expected,” notes James Trafford, an equity analyst who covers the sector.  “For now, the oil price has been surprisingly resilient, but it may drop in the second half of the year once those barrels are actually starting to be produced.”

Of course, higher tariffs do represent an obvious source of one-time, cost-push inflation, with consumer discretionary firms looking particularly exposed.

“A significant proportion of my companies’ goods are imported from Asia,” says Cameron Ho, a North American retail analyst.

Zak Gibson, a consumer discretionary analyst for EMEA and Latin America, agrees: “Apparel is 90 per cent imports from China.”

By contrast, financials, real estate, and consumer staples are the sectors with the lowest proportions of analysts saying their companies’ costs are exposed to tariff changes.

“Banks consume an immaterial amount of imported products,” says Canadian financials analyst Thomas Goldthorpe, although he adds that a knock-on effect of tariffs could be lower loan growth if the economy weakens.

Which companies have pricing power to pass on costs?

For those businesses whose cost bases have higher exposure to tariffs, pricing power will be key in determining whether they can maintain margins. Here again the picture is mixed. Information technology, consumer staples, healthcare, and industrials are the sectors with the largest proportion of analysts who say their companies have moderate or significant pricing power.

“Retailers passed through food inflation without issue during the 2022-23 inflation cycle,” says North America-focused consumer staples analyst Andrew Hall. “And the tariff inflation is likely to be smaller.”

“Engine companies have the best pricing power of any industrials,” adds Oliver Trimingham, who covers European aerospace. “They occupy monopoly or duopoly positions, with mammoth barriers to entry, and utterly captive customers.”

Jonathan Tseng argues similar dynamics grant significant pricing power to the semiconductor producers he covers: “It’s a consolidated industry. And it’s hard to make this stuff.”

“My companies are mostly high-quality businesses with pricing power and peers with similar supply chains,” says Dominic Hayes, an industrials sector equity analyst covering capital goods makers. “So, the main question is the degree of demand destruction.”

In some sub-sectors, weak demand is already imposing a constraint on pricing power.

“Historically I would have said my companies have significant pricing power,” says equity analyst Emma Cunningham. “However, luxury companies have pushed pricing too much since Covid, which puts them in a more difficult position to do so today. Consumer demand is choppy, with fatigue across vast portions of the consumer sector, including luxury.”

The case for - and costs of - relocating production

As things stand, most analysts say current trade policies are negatively affecting their companies. 

Companies can respond to rising costs by shifting production to different locations depending on the level of tariffs.

“I think my companies can change their supply chain structure,” adds Penn Bowers, an equity analyst who covers Japanese gaming companies. “So on a short-term basis they may be exposed to tariff changes but on a longer-term view they can adjust fairly easily.”

For some sectors though, shifting production wouldn’t be a straightforward fix, especially if lots of businesses are trying to do the same thing all at once. While a reordering of global supply chains might well minimise tariff costs at the individual firm level, it could nonetheless represent a further inflationary impulse beyond the initial tariff shock.

“If companies rapidly try to relocate to the US, that could lead to labour shortages and an increase in labour costs,” says automotive fixed income analyst Andras Karman.

Asia-focused analysts are relatively sanguine

Interestingly, as Chart 4 above shows, most analysts who cover Asia Pacific, China, and EMEA/Latin America say current trade policies have either no impact or a positive impact on how their companies currently operate. This suggests that if trade tensions persist, it’s companies in developed markets that could feel the brunt.

Chart 5 tells a similar story, where a notably smaller proportion of analysts covering Apac and China expect supply chain issues to adversely affect their companies’ earnings compared with other regions.

“There’s no big direct impact from tariffs to domestic consumption,” says China-focused consumer staples and sportswear analyst Alex Dong, although he adds that the overall picture is gradually weakening, against a current backdrop of limited fiscal stimulus to spur consumption.

Evan Delaney, a fixed income telecoms analyst covering North America, sees more direct tariff-related consumption headwinds in his sector: “Tariffs are likely to make handsets like iPhones more expensive. All else being equal, this will make a consumer less likely to upgrade their plan, slowing subscriber and pricing growth.”

But it’s not just the absolute effect of tariffs that investors should consider. Relative impacts will have a big part to play in deciding who the winners and losers are.

“The current base case is that Indian textile players may see relatively better tariffs versus peers,” says equity analyst Priyadarshee Dasmohapatra who covers the space. “If that happens, they will end up having better bargaining power.”

There are also, as always, second-order effects to consider. If we do, as expected, see persistent inflation in the US economy for the rest of the year, this too will create winners as well as losers.

“Given the probability of US Federal Reserve interest rate cuts has decreased since the tariffs, I expect banks to maintain relatively healthy net interest margins in the next 12 months,” says Sukhy Kaur, a financials fixed income analyst. “High inflation is also generally good for the insurance broker sector.”

To end on a positive note, though, whatever further challenges tariffs may or may not create, they will not be the first big tests that management teams have faced this decade.   

“I think managing through the Covid supply chain disruptions has left business models better prepared to handle this situation,” says European industrials analyst Abhishek Dhawan. “So, we should not underappreciate the ability of cyclicals to be able to navigate this better than in the past.”