Tariffs are once again in the spotlight, as the Trump administration implemented 25% tariffs on imports from Canada and Mexico on March 4th, alongside an additional 10% tariff on goods from China—bringing the total tariff on Chinese-made goods to 20%. In response, these countries swiftly imposed retaliatory tariffs on U.S. imports, adding uncertainty to the markets.
Major indexes reacted sharply this month, correcting from recent all-time highs. Given these developments, I wanted to take a minute to provide our perspective on what this means for the market and how investors should approach this uncertainty.
Why Tariffs Are Being Used
The administration has outlined three main reasons for these tariff measures:
Boosting U.S. Manufacturing – From the late 1990s through 2010, manufacturing employment fell by roughly 6 million jobs, as companies moved production overseas, according to Macquarie Asset Management. Since then, manufacturing jobs have recovered about 20% of that loss, as you can see in the chart below. Even so, the goal is to encourage companies to produce goods domestically rather than relying on overseas production.
Leveling the Playing Field – The U.S. is pushing for more balanced trade by imposing tariffs on countries that have higher trade barriers against American goods.
Negotiation Leverage – Tariffs are being used as a bargaining tool in broader discussions, such as border security and economic agreements with other nations.
How Tariffs May Impact the Economy
Tariffs increase costs on imported goods, which could increase inflation and hinder corporate profitability. Generally, they tend to stifle free and fair trade, and the consequences are often passed down to consumers, increasing the prices for affected goods. However, the impact may not be as bad as the scaremongers say. For example, roughly 75% of Mexican imports to the U.S. are industrial inputs, investment goods, and services. Only 25% are consumer goods. This is a key factor limiting potential consumer inflation pressures.
That said, trade policy uncertainty can cause businesses to delay investments and production decisions. While the immediate market reaction has been negative, the long-term impact will depend on how trade negotiations evolve and whether additional policy responses—such as Federal Reserve actions—come into play.
Staying Focused on the Long-Term
It’s understandable to feel uneasy during market downturns, but history has shown that reacting to short-term volatility can be costly. Consider the following:
Market Corrections Are Normal– Even during strong economic periods, markets experience corrections. In fact, we were overdue for a 10% correction – something that typically happens once every 18 months but had not happened since 2023.
Quality Investments Endure – Companies with strong balance sheets and competitive advantages are more likely to weather economic turbulence and emerge stronger. While the economy may slow down a bit in the near term, there is only a 15% chance for a recession this year, which is the lowest reading Franklin Templeton has ever registered on its interactive dashboard, which you can explore here.
Patience Is Key– Most all meaningful time periods in the history of the major indices, like the S&P 500, show that investors who stay the course and avoid emotional decision-making have been rewarded when markets recover. Historically (since 1980), after corrections, the S&P 500 has been higher by an average of 13.1% three months later, with gains 92% of the time. That’s from the low which, of course, is only apparent in hindsight, but it speaks to the potential upside from putting new money to work after corrections occur.
If you’re concerned about how these developments may impact your financial plan, we are here to listen and help. Please don’t hesitate to reach out to your advisor with any questions or to discuss your investment strategy. I am grateful for your continued trust and partnership. It’s a privilege to serve you.
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Sources: Macquarie Asset Management, Franklin Templeton, LPL Research
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.