Over this past weekend, the Trump administration utilized emergency powers to place tariffs on imported goods from Mexico, Canada, and China. Canada has already responded with tariffs of their own, while China is still determining their response. As of Monday, February 3rd, Mexico and the US have agreed to put the tariff talk on hold for a month since Mexico agreed to send 10,000 troops to the US/Mexico border to help with security.
What Is A Tariff?
A tariff acts as a sort of tax on imported goods and makes them more expensive to purchase. The idea is to make imported goods higher in cost, so consumers will purchase more goods produced domestically.
Tariffs can be implemented to protect domestic industries, influence another country on a particular policy or issue (which may not even be related to trade), and/or generate revenue. If tariffs have their intended effect, they negatively impact the exporting country.
However, tariffs can also potentially have negative consequences. Tariffs are paid by the domestic companies importing the goods, not the foreign companies exporting them. These additional costs are often passed on to the end consumer and can result in inflation. Another potential downside of tariffs is if the exporting countries retaliate with tariffs of their own and a trade war ensues with each country continuously adding more tariffs on each other.
How Does This Impact My Investments?
The stock market had a strong negative reaction to the initial news of the tariffs. When news of the agreement with Mexico to delay implementation for one month was released, markets reacted positively. We expect the stock market to remain more volatile than usual until we have more certainty and detail on these new tariffs. Will there be more exceptions for certain industries? Will the tariffs remain at 25% or will they be reduced? Uncertainly leads to greater volatility in stock prices.
Stock market prices incorporate new information all the time. When something major changes, like the implementation of new tariffs, each investor formulates their own opinion about how this change will impact their investments. Since no one can accurately and consistently predict the future, we feel it is best to own the market, diversify consistently with your goals, and stay disciplined with your investment plan.
While the current volatility may be unsettling, it is far from abnormal or unprecedented as global markets have triumphed through oscillating tariff policies in the past. We expect stock markets to be volatile. The short-term volatility is our cost for higher rates of return over time. Our goal is to help you stay focused on your investment strategy and not be swayed by short-term market movements. History has shown that markets recover and those who stay the course are often rewarded.
We value the trust you place in us to manage your portfolio and help achieve your financial goals. We take this responsibility very seriously. If you would like to talk in more detail about the current environment or your unique situation, please reach out to us. Tari
ffs and Investment Impact
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