Market Perspective and Tariff Impacts

On April 2, President Trump announced new tariffs on nearly all major trading partners. These tariffs are “reciprocal” in that they correspond to tariffs each country imposes on U.S. goods and are on top of previously announced duties. The average tariff rate across countries is 25%, with rates for some as high as 49%. While the implementation of these tariffs was widely telegraphed by the White House, the level and scope are greater than many investors and economists expected. The immediate market reaction has been negative, with the S&P 500 declining approximately 4% today.

There are many arguments for and against tariffs, and the topic can be politically charged. Regardless of how we each feel about these measures, we can acknowledge that these tariffs do represent a significant change in the global economic system.

It’s important in times like these to remember that markets can be fragile in the short run but are resilient in the long run. Over the past century, markets have experienced significant global economic shifts including wars, recessions, bubbles, pandemics, political change, and technological revolutions. In times of uncertainty, it can feel as if markets will never stabilize. Yet, history shows that markets can overcome even the most significant shocks, and often rebound when it’s least expected, as they did in early 2009 after the global financial crisis, in mid-2020 during the pandemic, in late 2022 after a technology-led bear market, and across countless other examples.

Having the fortitude and discipline to stay invested and stick to a personalized financial plan, or even to take advantage of more attractive valuations, is a key principle to long-term financial success.

Let’s cover some of the key facts. The newly-announced tariff measures have been set at a minimum 10% rate, with levels varying based on the U.S. trade deficit with each country. China, for instance, faces a reciprocal tariff rate of 34%, which is in addition to 20% tariffs previously announced. The European Union will be subject to 20% tariffs, while Canada and Mexico will not be immediately impacted by new reciprocal tariffs, and are instead subject to the previously-announced 25% tariffs related to illegal immigration and fentanyl. There is also an across-the-board 25% tariff on all imported automobiles, effective immediately.

The United States has a long history of tariffs, and in fact they were the primary source of federal revenue prior to the establishment of the federal income tax system in 1913. However, they fell out of favor after World War II as globalization took hold.

The administration’s arguments for tariffs are to raise revenues and ensure economic fairness, especially in the manufacturing sector – a policy it has dubbed “Make America Wealthy Again.” President Trump’s long-stated goal of reducing the trade deficit and the view that trade is unfairly balanced were on display in his April 2 speech.

Despite the immediate market reaction, it will take time for the true impact of these trade policy changes to play out. While the past is no guarantee of the future, there are many reasons to believe markets and the economy can eventually move past the current set of concerns.

Perhaps Warren Buffett said it best in 2008, during the middle of the global financial crisis: "In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

This is a helpful reminder that although market swoons can be unsettling, history shows that keeping a long-term perspective is the best way to stay on track to achieve your financial goals.