Tariffs and Trade Wars: Protecting Your Portfolio in a Shifting Global Economy
By Brian Famigletti, Managing Director & Head of Marketing
An Uncertain Global Economy
Tariffs and trade wars have brought the global economy into a season of uncertainty. The specifics of U.S. President Donald Trump’s new taxes on imported goods from Canada, China, Mexico, and more are ever-shifting. But one thing has remained constant: the market turbulence they’re stirring.
Tariffs — or government-imposed taxes on imported goods — increase the cost of foreign items, making them less competitive in the marketplace. As such, these levies can influence supply chains, reshape international trade patterns, and impact financial markets.
The Trump administration aims for these taxes to bring manufacturing back to the United States and reduce the flow of drugs and unlawful immigration from trading partners like China and Mexico. However, tariffs can encourage trading partners to retaliate, as many have already done. Critics argue that this could in turn damage equity values and drive up inflation.
Let’s look at how the current tariffs and trade wars might affect financial markets — and your portfolio.
Understanding the Trump Administration’s Tariffs
In the first months of his second term, Trump has introduced and retracted a range of tariffs.
In January, for instance, he announced 25% levies on all goods from Colombia. The nation’s President Gustavo Petro then threatened reciprocal tariffs. Both leaders ultimately reversed course.
On the other hand, Trump’s 25% tariffs on all foreign steel and aluminum went into effect on March 12. The European Union retaliated later that day by announcing up to $28 billion in taxes on U.S. imports. Canadian leaders also reported a plan to enforce $20 billion in reciprocal tariffs.
Those are just a few examples of the many tariffs proposed, enacted, or rescinded in the past few months.
Zooming out, the U.S. has used tariffs since the 18th century. They were introduced prior to the income tax as the federal government’s primary means of generating revenue. Most imported products in the U.S. are subject to some tax. These tariffs are paid for by the importing company, not the country’s government. The revenue, however, goes to the U.S. Treasury.
Many trade policy experts agree that consumers could ultimately shoulder the costs of the Trump administration’s tariffs, since American importers may respond by raising the prices of their goods to help offset the higher taxes. U.S.-imposed tariffs can also negatively affect foreign countries, creating barriers to selling goods abroad. This could in turn dent the bottom lines of companies reliant on international consumers.
What Do Tariffs and Trade Wars Mean for Your Portfolio?
Historically, the stock market is highly reactive to new tariffs. Indeed, the policy changes have already caused a great deal of unease on Wall Street.
Long-term implications will depend on how fast companies can alter their supply chains and prices. Certain economic sectors — like manufacturing and industrial, which require materials like steel and aluminum — could encounter immediate challenges.
On the other hand, sectors like software and cloud computing may be more protected from tariff effects. However, those high-growth industries have also seen downward pressure amid the uncertainty, as many investors rotate toward more defensive stocks.
Diversifying your investments can help spread risk in this shifting global economy. A mix of domestic and international companies across various sectors may create a well-diversified portfolio. Commodities like gold have also historically been helpful in offsetting inflationary and recessionary risks, although it’s important to remember that past performance is never a guarantee of future results.
Need help shoring up your portfolio? Contact Griffin Asset Management to speak with an expert.
Sources:
Forbes: How May Tariffs Affect The Stock Market And Your Investments?
Edward Jones: Unpacking the potential impact of tariffs
The New York Times: A Timeline of Trump’s On-Again, Off-Again Tariffs
The New York Times: Behind the Colombia Blowup: Mapping Trump’s Rapid-Escalation Tactics
Fox Business: Trump’s 25% tariff increase on all steel, aluminum imports takes effect, prompting retaliation from Europe
PBS: 5 things to know about tariffs and how they work
CNBC: How the U.S. has used tariffs throughout history — and why Trump is different, economists say
