Tariffs and the Economy: What is going on?

On Wednesday afternoon, President Trump announced tariffs on countries across the world. These tariffs not only impacted relatively poorer countries with outsized imports like Vietnam but also included significant trade partners with the United States like European Union members. 

The tariff announcements increased short-term volatility and dragged down equities and long-term bond yields, while investors fled to fixed income. Domestic stocks, including growth, small cap, and the Magnificent Seven in particular, saw continued decreases with news that China would enact retaliatory tariffs on Friday morning.

Some of these results are to be expected, as investors view that tariffs tend to be bearish for countries in the long term. From a purely economic perspective, as prices increase, costs are generally passed to the consumer and fewer products and services are exchanged as a result. And while economists typically also view tariffs as deflationary over extended periods of time, in the short term they can be inflationary as consumers take on these costs, putting pressure on prices and consumer sentiment.

At MBI, our commitment to delivering a high-quality experience and proactive service tailored to our clients’ needs never changes – but during periods of extreme market volatility being here for them matters even more.

We are continuing to see strong economic performance in the U.S. despite the impact of tariffs. While the market is forward-looking regarding the impact on U.S. GDP and jobs, some signs suggest the current reaction may be overshooting reasonable expectations.

For example, today’s jobs report advanced broadly, with nonfarm payrolls increasing 228,000 last month and exceeding all estimates in a Bloomberg survey of economists. Unemployment continues to remain near 4%, below the historical average, and corporate earnings also continue to be strong. Considering this information, the most recent Goldman Sachs estimate posted this year’s U.S. GDP growth at 1.7% (post downward revision) and indicating continuing positive growth.

We believe tariffs will continue to impact markets, but despite these concerns, we see reasons for optimism. In anticipation of a downturn, and as we have continued to emphasize diversification, including across cash, value stocks, international stocks, as well as fixed income, there remain a number of exciting opportunities to pursue.

•  Equities and growth purchases at steep discounts
•  Portfolio rebalancing at the asset allocation level
•  Dividend yields becoming more attractive as fixed income yields fall
•  Longer-term bonds gaining ground against cash
•  Non-retirement account tax loss harvesting
•  Roth IRA conversions (as applicable)

Your investment portfolio is just one part of a broader financial strategy. Whether you're reassessing your approach or exploring new guidance, our team is ready to support you. Contact us to start the conversation.