Executive Summary:
The change from one US Presidential administration to the next typically brings changes in policy and approach.
However, the incoming Trump administration has been in office for about six weeks and both the rate of change and contrast with the past Biden administration is striking.
In particular, the threat of tariffs has investors and markets struggling to make sense of the uncertainty.
While the nation remains polarized from a political standpoint, this paper seeks to approach potential tariffs from an unbiased perspective to provide an overview of where things stand currently.
In his second term in the Oval Office (and with Republican control of Congress), President Trump wasted little time in moving forward with his priorities. While his platform includes a wide variety of issues, we are focusing on tariffs because we believe they have the most immediate and direct impact on the economy and investment markets.
Tariff Defined – “A tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages.”[1] (Worth noting, tariffs may punish other countries by making their products more expensive, but it is US companies that actually pay them.)
This issue has dominated headlines for the past month and President Trump has even referred to tariffs as the most beautiful word in the dictionary. He has floated using them against friends and foes alike in an effort to negotiate his priorities. For example:
Tariffs on Canada and Mexico of 25% on most goods (10% on energy) – both paused for 30 days but effective as of March 4
He enacted a 10% tariff on China initially and that was increased to 20% on March 4
He stated that he plans to increase the tariff on aluminum and steel to 25% and to eliminate country and product exemptions on both
He stated that more broad reciprocal tariffs will be levied on a country-by-country basis later this spring and he has suggested additional tariffs, as well (see image below for more specifics)[2]
The Chinese have already responded by implementing their own retaliatory tariffs on coal and liquified natural gas from the US. In addition, they announced plans to levy 10-15% tariffs on a wide variety of US agricultural products. Those tariffs are set to take effect on March 10.[3]
Retaliatory tariffs have also been mentioned by Canada (25% on a variety of US goods) and the European Union (EU) if the US moves forward with plans to levy tariffs against them. For example, the list of goods below represent those targeted by the EU during President Trump’s first administration. It is worth noting that Canada, Mexico, and China represent our three largest trading partners, so trade wars with those countries matter to both sides.[4]
So, are widespread tariffs preferred US policy or are they simply a negotiating tool to address priorities? It is difficult to say with certainty at this point, as more of the tariff deadlines are approaching in the next few weeks and the ones that have taken effect could quickly be undone. While President Trump’s first term in office makes it clear that he is not afraid to implement tariffs, he may be using them as a bargaining chip to get concessions for greater security at the border, a reduction in fentanyl trafficking, and better trade deals, in general.
What is clear is that the market has been paying attention to the headlines and tweets. For example, measures of inflation have been moving sideways the past few months, and the 10-year US Treasury yield increased after the Federal Reserve (Fed) started reducing the Federal Funds rate last September (rates typically fall when the Fed brings Fed Funds rates down). We believe that, at least in part, this initial reaction was due to anxiety people were feeling over the potential tariffs reigniting inflation.
More recently, however, the US equity market has fallen as the deadlines get closer and the yield on the 10-year US Treasury bond rapidly reversed course as investors flock to safety. We believe this response is indicative of concerns that aggressive tariffs could cause an economic slowdown in the US and elsewhere. Investors are clearly getting anxious.
We understand the anxiety; a wide variety of products could be affected if the plans that have been discussed are enacted in full. For example, the image below illustrates goods imported to the US from the various countries that may be impacted.[5] In addition, the uncertainty created by the potential tariffs is making decision-making nearly impossible for business owners and consumers alike.
If the proposed tariffs come to fruition and remain in place, we do believe that at least some of the increased cost will be felt by US consumers in the way of increased prices. Additionally, if the most aggressive tariffs are enacted and a broad-based retaliatory response follows, we believe the potential for an economic slowdown in the US and abroad exists.
The Path Forward
It is important to remember that while tariffs have dominated market news of late, it is only one facet of our incredibly complex global economic landscape. For example, the US economy has been incredibly resilient the past few years, aided in part by low unemployment, healthy consumer spending, and strong corporate earnings. In addition, the new administration, which has only been in office for about six weeks, campaigned on many other potentially business-friendly issues such as tax reform, deregulation (potential for increased mergers / acquisitions), and infrastructure development. It is against this relatively positive economic backdrop that the tariff drama will play out.
In addition, many non-political issues have the potential to move markets forward. For example:
Development and deployment of artificial intelligence (AI), potentially boosting productivity
Buildout of data centers and infrastructure required to support AI and electrification of everything
Two regional conflicts – Ukraine/Russia and Israel/Hamas – which if resolved, have the potential to reduce global tail-risk and inflation
Lastly, it is entirely possible that President Trump reverses course on proposed tariffs if negotiations are successful. In that scenario, a relief rally may well ensue.
Rather than trying to predict the unpredictable, we will heed Yogi Berra’s advice below and simply observe how this story unfolds. We do, however, continue to advocate for being mindful of risk and staying diversified in this uncertain investment environment.
“It’s tough to make predictions, especially about the future.”
~ Yogi Berra
As always, we appreciate your trust in our firm as we navigate the complexities of today’s investment landscape. We remain committed to making prudent, impactful decisions on your behalf, and we look forward to continuing our partnership in the years to come.
Sources
[2] Source: Bloomberg
[3] Source: https://www.nbcnews.com/news/world/trade-tensions-china-canada-retaliate-us-tariffs-rcna194645
[4] Source: https://www.bloomberg.com/news/articles/2025-03-02/trump-barrels-toward-tariff-barrage-on-canada-mexico-and-china?srnd=homepage-americas
Important Disclosures
The views expressed in this piece are the author’s and may not represent the opinion of Investment Research Partners. The views are as of the date listed on the material and are subject to change based on changes in fundamental economic or market-related data. Forecasts regarding the market, economy, and individual securities are subject to a wide range of possible outcomes. Past performance may not be representative of future results, and all investments are subject to loss. This piece is not intended as individualized investment advice. Before participating in any investment program or making any investment, readers are encouraged to consult with their own professional advisers, including investment advisers and tax professionals.
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