Carlos Von Hardenberg, Investment Manager, Mobius Investment Trust, writes that emerging markets are some of the hardest hit by new US tariffs.
Chinese goods currently face tariffs of up to 35 per cent, while India and Brazil face even higher tariffs of up to 50 per cent. Despite the current wave of global protectionism and escalating trade tariffs, emerging markets continue to offer compelling investment opportunities. The resilience of these markets is underpinned by several factors including robust domestic demand, favourable demographics, the growth of high-quality, locally focused companies, and a shift away from reliance on US trade.
Strong domestic demand as buffer:
India is a prime case study of how strong domestic demand can provide resilience against external, tariff-induced shocks. Although export-driven industries are facing challenges, India’s vast and dynamic domestic market serves as a buffer against global volatility. India, with a population exceeding 1.4 billion, is the world’s most populous country and boasts a domestic consumption market that accounts for over 60 per cent of its GDP. Private consumption reached USD2.1 trillion in 2023, and the World Data Lab projects that India will have the second-largest consumer market by 2030, with 773 million consumers—up from 529 million in 2024—a 46 per cent increase.
Indian companies focused on local consumption across fast-moving consumer goods (FMCG), consumer durables, travel, and retail are outperforming export-oriented peers. The country’s youthful demographic, with a median age of 28.8; rising incomes, with GDP per capita at USD2,880; and rapid urbanisation, with 37 per cent of the population now living in urban areas, are driving a shift toward premium and experiential goods.
For example, luxury car sales have risen by 35 per cent every year since 2019 and sales of ultra luxury homes worth over USUSD6 million surged by 50 per cent in a single year in 2023. Looking ahead, revenue in the luxury goods market is expected to grow at a CAGR of 9.8 per cent (2025-2029), travel & tourism at 15.67 per cent, and eCommerce at 11.77 per cent (2025-2030).
Furthermore, Prime Minister Modi’s announcement on August 15th that the “next generation GST reforms” will be implemented by October 21, 2025, is likely to boost domestic consumption. This is clearly a structural reform and not just a short-term move to focus on consumption over capital expenditures. The current four-slab regime (5 per cent, 12 per cent, 18 per cent, and 28 per cent) is likely to collapse into two main slabs: 5 per cent and 18 per cent, plus a 40 per cent “special” rate for sin and demerit goods (e.g., tobacco and online gaming). This will give India one of the cleanest indirect tax systems in the world among federal countries.
This reform may further enhance the preference for domestic consumption, and lower-end consumer goods are likely to benefit the most. In the FMCG sector, much of the tax savings will likely be passed on to consumers, supporting higher sales volumes, though the increase may be less than proportional given the relative inelasticity of demand. Companies could also see margin improvements as lower pricing helps normalise trade promotions, as was observed when GST was first introduced. Benefiting sectors include autos, cement, apparel and footwear, as well as services, particularly insurance and affordable hotels.
Resilience is evident in other emerging markets with strong internal demand, such as Brazil and many ASEAN economies, whose growing domestic marketssimilarly help buffer against global volatility.
Trade diversification as buffer:
Another factor that strengthens resilience against higher US tariffs is the growing trade integration among emerging markets, which reduces reliance on the US market. Brazil illustrates this trend clearly. Despite being hit with one of the steepest tariffs the impact on Brazil’s economy should be quite limited. Brazil’s exports to the US represent only about 12 per cent of its total exports, and as exports accounted for less than one-fifth of Brazil’s GDP last year, the estimated GDP hit from even a blanket 50 per cent levy would be only 0.3–0.5 per cent over three years, according to Capital Economics. In reality, the impact should be smaller, as almost half of Brazil’s exports to the US will be faced with the universal 10 per cent tariff rate. As a result, Brazil is one of the only countries that has not engaged with the US so far. Brazilian markets have remained robust with the real up 10 per cent against the dollar this year, and the BOVESPA index up 14 per cent, without significant volatility following the tariff announcements.
For exports that are not exempt such as agricultural products like soyabeans, beef and coffee, Brazil may be able to redirect exports to buyers primarily in the BRICS group. In response to Trump’s tariffs, these countries have been working together to increase trade with one another. For example, this summer, President Lula and Prime Minister Modi, reiterated their goal of increasing Brazil–India trade to over USD20 billion annually by 2030, up from approximately USD12 billion last year. However, this is not a new development, and the current trade environment is accelerating these trends rather than causing them. For example, during the first US–China trade war in 2018, China significantly increased its imports of Brazilian soybeans as a substitute for US supply. The graph below shows the overall increase in China’s importance as Brazil’s main export destination over the past decade.
ASEAN is another good example. Although the US remains an important destination for these countries’ exports, they are increasingly trading among themselves and with other Asian economies. In 2024, intra-ASEAN trade accounted for 21.5 per cent of the region’s total trade, valued at USD 3.5 trillion.
Conclusion:
In a world of rising protectionism, investors should look beyond export data and instead focus on the structural strengths of emerging markets, particularly those with large, growing, and increasingly affluent populations with strong domestic demand, and those diversifying trade relationships over the long term. India and Brazil exemplify such economies and are well placed to remain resilient against higher tariff levels.
