During periods of heightened trade tensions between major economic powers, the business environment often becomes highly uncertain and volatile, significantly impacting companies across various industries. However, some companies are better positioned to weather these storms and even outperform their counterparts during times of trade disputes.
In this article, we explore the specific characteristics that enable certain companies to demonstrate greater resilience and superior performance amid trade-related uncertainties. By understanding the strategic attributes that contribute to a firm’s ability to navigate turbulent trade dynamics, investors can make more informed decisions and better position their portfolios for long-term success.
1. Strong pricing power
Companies with strong pricing power – the ability to raise prices without significantly eroding demand – are uniquely positioned to navigate the challenges of trade wars. By passing tariff-related cost increases directly to consumers, these firms are able to preserve profitability even as input costs rise, making pricing power a critical defence against economic volatility.
Historical data underscores this advantage: such companies consistently outperform broader market indices during inflationary periods and trade disputes. The post-COVID inflation wave, for instance, marked the most severe macroeconomic shock to the U.S. economy in the last 40 years. Yet the Bloomberg BBG Pricing Power Index surged during this period, eclipsing the broader market’s performance.
Similarly, in the years preceding the 2008 financial crisis, companies within the Bloomberg Pricing Power Index outperformed the broader market, demonstrating their ability to thrive under economic stress. This pattern suggests that when tariffs or inflation drive up material, labour, or component costs, businesses with strong pricing power can transfer the burden to consumers through measured price hike, safeguarding margins without alienating customers.
This pricing power often stems from structural advantages such as substantial brand equity, proprietary technology, or oligopolistic market positions. These factors insulate their products or services from price sensitivity, enabling firms like Pfizer (patent-protected drugs), Hermès (high-end luxury branding) or Visa and Mastercard (payment duopoly) to adjust pricing strategies with minimal demand disruption.
2. High gross margins
Companies with high gross margins possess greater financial flexibility to absorb tariff-related cost increases. These businesses benefit from a significant buffer against cost pressures, common during trade wars. Research by Goldman Sachs highlights that firms with consistently high and stable gross margins are exceptionally well-equipped to manage rising input costs caused by tariffs. Such margins allow companies to either absorb additional expenses or pass them on gradually to customers, avoiding abrupt price hikes that could meaningfully dampen demand.
During the 2018–2019 trade tensions, companies with elevated gross margins outperformed the broader market. For instance, the median stock in Goldman’s high-margin portfolio delivered a total return of 17% over this period, compared to just 8% for the Russell 1000 Index (excluding financial, real estate, and utilities sectors). This performance gap highlights the protective advantage of robust margins in volatile trade environments.
Margin stability also plays a critical role. Goldman’s research focused on companies with the lowest coefficients of variation in gross margins over five years, reflecting sustained consistency rather than short-term advantages. This reinforces the view that structurally high-margin businesses are better positioned to navigate trade war challenges due to durable competitive strengths.
3. Large-cap market position
Companies with larger market capitalisations typically demonstrate greater resilience during trade disputes due to their financial resources, diversified revenue streams, and established market positions.
Large-cap companies often possess substantial cash reserves that can help them navigate temporary disruptions in trade relationships. These financial resources allow them to absorb short-term tariff impacts while adjusting business strategies. Additionally, large established businesses frequently have more bargaining power with suppliers and a greater ability to restructure supply chains when necessary.
While market capitalisation alone doesn’t guarantee resilience, it typically correlates with other beneficial characteristics like established customer bases, brand recognition, and operational flexibility—all valuable assets during trade disputes.
4. Non-discretionary product offerings
Companies providing essential goods or services – those that consumers cannot easily forego – tend to sustain demand even during economic uncertainty caused by trade wars. During trade conflicts and rising cost pressures, consumer spending patterns typically shift toward necessities and from discretionary purchases (e.g., luxury goods, travel, or entertainment). These non-discretionary goods and services maintain stable demand regardless of macroeconomic conditions, as consumers prioritise basic needs.
For example, payment processors Visa and Mastercard delivered one-year returns of 23% and 16%, respectively, despite recent trade tensions. Their services remained indispensable to global commerce, insulating them from tariff-related disruptions that heavily impacted manufacturing sectors.
Additionally, non-discretionary sectors often receive preferential treatment in tariff policies. During the Trump administration’s latest tariff round, critical sectors were almost fully exempted to avoid disrupting essential inputs for U.S. industries. Exemptions included:
- Electricity and petroleum products: 100% exemption.
- Copper: Fully exempted, with no products affected.
- Wood-based products: High exemption rates (over 90%) for sheets, panels, sawn wood, and raw timber.
- Energy raw materials: Approximately 95% exemption.
- Pharmaceuticals: The pharmaceutical sector also benefited significantly, with 84% of drugs and 72% of basic pharmaceutical products exempted from tariffs.
5. Localised footprint
Companies with a localized footprint, those that produce and sell mainly within the same country or region, are naturally insulated from the effects of tariffs and trade wars. Because their supply chains, manufacturing, and customer base are concentrated domestically or regionally, they avoid the added costs of cross-border tariffs and import duties. This localized model minimizes disruption, keeps their cost structure stable, and allows them to maintain competitiveness even when global trade tensions escalate.
Automaker BYD exemplifies how a localized footprint can bolster resilience amid global trade tensions and tariffs. With a robust domestic supply chain and a focus on China’s vast EV market, BYD has minimized its exposure to international trade disruptions. This strategy has enabled the company to maintain stable operations and profitability, even as other automakers grapple with escalating tariffs and supply chain challenges.
In 2024, BYD achieved record-breaking sales, delivering over 4.3 million vehicles globally—a more than 40% increase from the previous year. Of these, approximately 3.49 million vehicles were sold in China, accounting for about 81% of total sales. This strong domestic focus contributed to BYD generating 420.7 billion yuan (approximately US$58 billion) in China, making it the top automaker in the country by sales revenue. This localized strategy has enabled BYD to maintain stable operations and profitability, even as other automakers grapple with escalating tariffs and supply chain challenges.
The fifth perspective
While trade tensions remain unpredictable, focusing your portfolio on high-quality companies with strong fundamentals can help mitigate some of the associated risks. Data from the past has shown that companies with strong pricing power, large market capitalisation, non-discretionary product offerings, high gross margins, and localised footprints demonstrate significantly greater resilience during uncertain times.
These companies can often maintain profitability and market performance even amid significant trade disruptions. By prioritising investments in such financially robust and operationally agile firms, investors can position their portfolios to weather the storms of unpredictable trade policies and economic fluctuations. A disciplined focus on quality and fundamentals can provide a steadying influence in an otherwise volatile market environment.
