Tariffs roil markets and the economy
The Trump administration’s action involving tariffs have resulted in much volatility in the markets. As of inauguration day, Wall Street appeared to believe that Trump’s tariff rhetoric was simply a negotiating tactic or otherwise immaterial political speech. This changed in March when he allowed tariffs on Canada and Mexico to actually take effect. In response to this event, we took steps to reduce client stock exposure to below our default target. Subsequently, a massive set of tariffs was announced in April, and the market reaction was historic.
Much uncertainty remains about the tariff situation. The April 2nd tariff announcement included a 10% general tariff, a penalty tariff on countries with a trade surplus vs the US, and promises for retaliatory tariffs. China retaliated which caused a tit-for-tat escalation to the point where bilateral trade is grinding to a halt. Markets quickly understood that this situation is untenable, and Trump attempted damage control by delaying the penalty tariffs, and calling for negotiations including with China. Our assessment is that the Trump administration’s nearterm goal is to implement the 10% general tariff, plus some additional tariffs on China. We think the intention is to negotiate away penalty tariffs without too much trouble. It appears that the market agrees, having rallied back towards its April 1st level amid much volatility. However, it is certainly a possibility that deals are not made easily, and worse-than-expected tariffs begin to take effect.
We advise bracing for a recession. Tariffs are tantamount to a sales tax. (In fact, some companies are already itemizing tariffs on sales receipts much like sales tax.) A sudden 10% or more price hike is a large shock to any economy. Our view is that, ultimately the economy can adjust to a one-time 10% tariff and resume growth. However, the chaotic nature of the tariff announcements makes it extremely difficult for businesses and consumers to plan their spending and investment. When everyone starts playing defense, that reduces economic activity even more. We are expecting a recession that may require fiscal and/or monetary stimulus depending on the path this tariff situation takes.
Market Commentary: 2025 Q2
Tariffs roil markets and the economy
The Trump administration’s action involving tariffs have resulted in much volatility in the markets. As of inauguration day, Wall Street appeared to believe that Trump’s tariff rhetoric was simply a negotiating tactic or otherwise immaterial political speech. This changed in March when he allowed tariffs on Canada and Mexico to actually take effect. In response to this event, we took steps to reduce client stock exposure to below our default target. Subsequently, a massive set of tariffs was announced in April, and the market reaction was historic.
Much uncertainty remains about the tariff situation. The April 2nd tariff announcement included a 10% general tariff, a penalty tariff on countries with a trade surplus vs the US, and promises for retaliatory tariffs. China retaliated which caused a tit-for-tat escalation to the point where bilateral trade is grinding to a halt. Markets quickly understood that this situation is untenable, and Trump attempted damage control by delaying the penalty tariffs, and calling for negotiations including with China. Our assessment is that the Trump administration’s nearterm goal is to implement the 10% general tariff, plus some additional tariffs on China. We think the intention is to negotiate away penalty tariffs without too much trouble. It appears that the market agrees, having rallied back towards its April 1st level amid much volatility. However, it is certainly a possibility that deals are not made easily, and worse-than-expected tariffs begin to take effect.
We advise bracing for a recession. Tariffs are tantamount to a sales tax. (In fact, some companies are already itemizing tariffs on sales receipts much like sales tax.) A sudden 10% or more price hike is a large shock to any economy. Our view is that, ultimately the economy can adjust to a one-time 10% tariff and resume growth. However, the chaotic nature of the tariff announcements makes it extremely difficult for businesses and consumers to plan their spending and investment. When everyone starts playing defense, that reduces economic activity even more. We are expecting a recession that may require fiscal and/or monetary stimulus depending on the path this tariff situation takes.
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