There's been some significant developments this last week as President Trump's surprisingly steep "Liberation Day" tariffs sent shockwaves through markets worldwide.
With markets in turmoil and a lot of uncertainty being broadcast far and wide, I wanted to send another update to give some context about what's going on right now.
President Trump ran on a tariff heavy platform, and we've been expecting the April 2nd announcement for weeks. However, the level and scope of the tariffs announced were much higher than expected, and there was less clarity on the overall strategy on trade than the markets were hoping for.
Hold Steady as the Situation Evolves
This is a complex and confusing topic to talk through, and the situation is evolving hour by hour right now. As I'm writing this on Friday morning, China just announced tariffs on the U.S. in retaliation, and it looks like it's going to be another rough day in the markets.
The confusion and uncertainty make it harder - and more important - to manage our emotions and stick to our long-term plan. So, the main message I want to get across is to hold tight. Markets will likely be volatile over the next weeks and months until we get more answers on what the future of trade looks like for the U.S.
This is an artificial situation coming into the market all at once. While I think some of these tariffs could be here to stay, we could see new trade deals or other positive developments happen at any time. With a single tweet or news report that shows progress on trade or that the situation is better than expected, we could see markets rebound very quickly.
The important thing to remember is when our emotions are high, when things get scary, when people are panicking and breaking from their plans, it becomes more important than ever for us to hold steady, stay diversified, and stick to the plan.
Announcement of New Tariffs on April 2nd
I don’t want to downplay it: this announcement on tariffs represents a much bigger change than most investors and economists were expecting, myself included. There were hopes that, regardless of the answer received, having some clarity around the administration's Tariff Strategy would lead to some stability in the markets.
- The newly announced tariff measures have been set at a minimum 10% rate, and the average tariff rate across countries is 25%, with rates for some countries as high as 49%.
- At a company level, some U.S. manufacturers might benefit from less foreign competition. Conversely, about 30% of large U.S. companies' sales come from overseas markets, so changes in trade rules could impact their business
- While it is true that there are many unfair trade deals and practices that need to be addressed, even many of President Trump's supporters have been surprised at the size, scope, and speed of the efforts to reset global trade all at once.
- This has led some to believe that we could be heading for an economic slowdown and potentially a recession.
- Others still believe that these negotiations are only getting started and we shouldn’t overreact as they aren't planning on tariffs to remain in place long-term.
Are prices going to go up? Are the tariffs going to be negotiated away? Is the economy going to go into a recession? We don’t know the answer to most of these questions because so much of it depends on what happens from here.
Most new cars would go up in price, but used cars will be more valuable. Products from some companies will get more expensive; other countries will make new trade deals in the coming weeks and months resulting in almost no impacts.
Each product will have specific impacts based on where it's produced and what country its parts are from. Some companies and industries will be impacted negatively, others positively, and some not at all.
Impacts From New Tariffs Over the Short/Medium Term
Critics of the Tariffs say there will likely be real disruptions in our economy as prices on many goods go up in the short term and businesses scramble to reset over the next 6-12 months. Much of this will depend on how trade negotiations evolve/devolve from here, but these are some of the disruptions we could see in the next year if this level of tariffs remain in place or escalate from here.
- Increased Prices on Imported Goods: Higher costs on imported goods—ranging from electronics to everyday household items—can lead to increasing consumer prices, straining household budgets, and eroding purchasing power. Overtime, consumers tend to adjust their shopping habits to products and brands that are less impacted by tariffs.
- Reciprocal Tariffs: Other countries may retaliate by increasing their own tariffs on U.S. goods. This could escalate trade tensions, resulting in tariff increases until one side gives up and they renegotiate, or they stop trading with each other completely.
- Supply Chain Disruptions: Companies that rely on international suppliers may face higher costs or delays, leading to reduced margins, price hikes, or even changes in product availability as they work to reset their supply chains overtime.
- Economic Slowdown: Increased prices in the short-term and the time required for the economy to adjust would likely lead to an economic slowdown or even a recession to one degree or another until the economy starts growing again.
- Interest Rate Movements: The Federal Reserve and other central banks may adjust interest rates to offset inflation or support growth.
Potential Long-Term Benefits of Tariffs
While the short-term effects of tariffs may feel disruptive, proponents of the new tariff policy say these changes are long overdue, and it's worth considering some of the potential longer-term benefits that we could see down the road from resetting these trade policies.
- Free and Fair-Trade Deals: The Trump Administration has signaled that its goal is to bring other countries to the negotiating table and get them to reduce or eliminate their own tariffs on U.S. goods, so that the U.S. will do the same.
- More Security in Supply Chains: By encouraging production closer to home, tariffs could help rebuild key industries, create more local jobs, and reduce dependence on foreign supply chains—a lesson underscored during the pandemic.
- National Security in Strategic Industries: Strengthening domestic manufacturing—especially in industries critical to the safety and security of the country such as Healthcare, Defense, and Technology—can increase economic security and reduce risk to the U.S. in times of war, pandemic, or periods of economic/political instability in other parts of the world.
- Increased Investment in America: To avoid tariffs, companies have announced plans to build new manufacturing and production facilities, increase capacity at existing facilities, and overall bring tremendous investment in U.S. jobs, infrastructure, and economic output.
- There have been dozens of announcements, totaling trillions of dollars of investments into the United States in the last 2 months alone.
- While this will take years to play out fully, these investments into new production in the U.S. will produce good paying jobs and tax revenue for the U.S. government for decades to come.
These benefits may take time to materialize, and they won’t come without challenges. But from a strategic perspective, they represent part of a broader transition—one that long-term investors are well-positioned to navigate.
Staying Focused on The Long-Term
Above all else, let’s remind ourselves that we are long-term investors. These trade changes are an ongoing process, and it will take time to see their full effects. While stocks are volatile in this uncertain period, bonds are holding up, showing the power of diversification.
Remember that investors have faced many challenging periods over the years, including the pandemic, inflation, wars, recessions, bubbles, political turmoil, and technological revolutions. In every case, markets have gone onto new highs, even if it took some time. While we can't predict the future, it’s important not to lose sight of our long-term goals and our plans & strategies that are built to weather tough times like these.
There are several potential developments investors are looking to over the next 6-12 months that we think investors will start to look to, as we work our way through the tariff situation.
- Tax cut details later in 2025
- Deregulation across the economy that will start to help businesses
- Lower energy prices and infrastructure investments
- Lower interest rates
- Increased tax revenue from investments in U.S. manufacturing
If You're Stressed, Let's Do Some Planning
Please don’t hesitate to reach out with any questions or concerns you're having. We're happy to revisit your long-term plan and refocus on the things we can control.
Periods like this are a great opportunity to put extra cash to work, make contributions to Roth IRAs and 401(k)’s, or otherwise take advantage of the market volatility for the long-term.
We're watching the situation in the markets and will adjust the portfolios as we get more clarity moving forward.
We don't know how this will work out in the short term, but we remain confident in the power and historical success of long-term, diversified investing. We've been through many pullbacks and corrections in the past and made it through. But it doesn’t seem to make it easier each time we enter the next period of stress in the markets.
We appreciate the trust you put in us to manage your investments and financial plan. We're here anytime you need us, so please don’t hesitate to reach out if you need anything or just want to catch up for a review.