Navigating Tariff Turbulence
The recent news regarding tariffs has caused some turbulence in the global markets. The on-again, off-again tariff swings have given us a bit of whiplash. In response, we wanted to provide you with some general thoughts on how tariffs might affect your portfolios – if they ever stick.
Tariffs are a tax on international goods entering the US. Since most things we buy in the US have at least some internationally sourced components, tariffs sort of act as a national sales tax. Taxation is always a reverse stimulus. However, there are pros and cons to tariffs:
Pros – Increase demand for US manufactured goods domestically
Pros – Increased tax revenue to reduce the federal deficit / balance the budget
Cons – Decreased demand for US exports
Cons – Increased prices for US consumers purchasing international goods
As a whole, we believe the market selloff is more about the uncertainty regarding how tariffs will affect the economy, than directly related to an economic downturn. There are many investment risks: liquidity, credit, inflation, currency, business, concentration, etc. We would consider tariffs as a political risk, and one that is difficult to trade. Tariffs could be lifted tomorrow, next week, or next month. Case in point – Trump signed tariffs into place on Saturday and then paused them on Monday. Making long-term decisions based on short-term uncertainty is not a great financial strategy.
Tariffs, as a tax, act as a de-stimulus for the economy, similar to any other tax or federal rate management. The administration’s DOGE efforts to decrease government spending and waste also act as a de-stimulant. One of the major causes of inflation over the last few years has been government spending.
It is likely that this de-stimulus will be offset by other economic stimulus – a decrease in interest rates or a decrease in federal income tax taxes, both of which the current administration has lobbied for.
It is important to be prepared for these shocks to the market ahead of time as it is very risky to make major adjustments during a downturn. As always, if the markets do continue to fall, it will represent a buying opportunity to increase your overall equity allocation.
If you have any questions or would like to discuss your investment strategy, please don’t hesitate to reach out.
The information given herein is taken from sources that IFP Advisors, LLC, dba Independent Financial Partners (IFP), IFP Securities, LLC, dba Independent Financial Partners (IFP), and its advisors believe to be reliable, but is not guaranteed by us as to accuracy or completeness. This is for information purposes only and in no event should be construed as an offer to sell or solicitation or an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as IFP does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. This report may not be reproduced, distributed, or published by any person for any purpose without IFP's express prior written consent.