Emerging market assets are facing renewed pressure as the Trump administration signals potential tariffs on Canada and Mexico by February 1. This announcement revives concerns from his first term, where similar timelines were often set but not met. The uncertainty surrounding these tariffs adds to the headline risks that keep emerging markets on edge, particularly as they navigate challenges like a sluggish Chinese economy and persistent high US Federal Reserve rates.
Despite these pressures, emerging markets have found some relief from a softer tone on tariffs, which has eased inflationary concerns and pushed US Treasury yields lower. This environment has been favorable for emerging markets, as lower yields reduce borrowing costs and encourage capital inflows. However, the broader impact of a more inwardly focused US economy could dampen demand for emerging market exports, further complicating their economic outlook.
The VanEck Vectors J.P. Morgan EM Local Currency Bond ETF (EMLC), which focuses on local currency bonds from emerging markets, remains steady at $23.44 as of 01:10 on January 22. The ETF's performance reflects the ongoing balance between potential tariff impacts and the benefits of lower US Treasury yields.