Feb 3. 2025 (2 PM ET)
Over the weekend, the Trump administration placed tariffs on imported goods from several key US trading partners including Mexico (25%), Canada (25%, except energy imports which receive a 10% tariff), and China (10%). Canada has already responded with tariffs of their own, China is still determining what retaliatory strikes they might do, while Mexico and the US have agreed to put the tariff talk on hold for a month (Mexico agreed to send 10,000 troops to the US/Mexico border) (note this was written at 2 PM EST on Feb 3, 2025 and is subject to change).both work), and I don’t want to feel guilty for taking time off and spending a little after a hard year at work.
Before we dive deeper into this, let’s define what a tariff is. A tariff can be defined as a tax on imported goods to make them more expensive. Tariffs, in theory, can be implemented to protect domestic industries, influence another country on a particular policy or issue (which may not even be related to trade), or generate revenue. Keep in mind that tariffs are paid by the domestic companies importing the goods, not the foreign companies exporting them, and those costs are most often passed on to the consumer.
By increasing the cost of imported goods through tariffs, the idea is to make them less attractive, so consumers purchase more goods produced domestically. If tariffs have their intended effect, they negatively impact the exporting country. However, if consumers still demand the imported goods, the tariff effectively becomes a tax paid by the consumer. Furthermore, even if consumers do shift to domestic goods, those producers can sense a lack of foreign competition and decide to raise their prices, also hurting the domestic consumer. These outcomes may be considered inflationary by economists.
Are tariffs effective? A quick google search of the word “tariff” provides a treasure trove of articles, with opinions on both sides of the debate as to whether they are an effective policy or not. We already mentioned the intended (i.e. positive) outcomes of tariffs, but what are some of the potential negative consequences? One potential outcome is a trade war, which could occur if, in the current example, Canada, Mexico, and China retaliate with tariffs of their own. Tariffs can also slow an economy in a couple of ways, whether it’s a negative impact on US manufacturers (higher costs of raw materials, or tariffs placed on their exported goods) or if higher costs simply cause consumers to spend less. In addition, a slowing economy can also negatively impact the labor market. In addition, other unintended consequences of tariffs can potentially be inflationary, such as previously described, the disruption within or changes of global supply chains, and the impact of currency fluctuation.
As with any uncertainty, it is possible we will see more market volatility. While the current volatility may be unsettling, it is far from abnormal or unprecedented as global markets have triumphed through oscillating tariff policies historically. As your advisor, my/our goal is to help you stay focused on your long-term 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 and dreams, and 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.
East Bay Investment Solutions, a Registered Investment Advisory firm, supplies investment research services under contract.
This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. This document is intended for the exclusive use of East Bay clients, and/or clients or prospective clients of the advisory firm for whom this analysis was prepared in conjunction with the EAST BAY TERMS OF USE, supplied under separate cover. Content is privileged and confidential. Information has been obtained by a variety of sources believed to be reliable though not independently verified. To the extent capital markets assumptions or projections are used, actual returns, volatility measures, correlation, and other statistics used will differ from assumptions. Historical and forecasted information does not include advisory fees, transaction fees, custody fees, taxes or any other expenses associated with investable products unless otherwise noted. Actual expenses will detract from performance. Past performance does not indicate future performance.
The sole purpose of this document is to inform, and it is not intended to be an offer or solicitation to purchase or sell any security, or investment or service. Investments mentioned in this document may not be suitable for investors. Before making any investment, each investor should carefully consider the risks associated with the investment and make a determination based on the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives. Information in this document was prepared by East Bay Investment Solutions. Although information in this document has been obtained from sources believed to be reliable, East Bay Investment Solutions does not guarantee its accuracy, completeness, or reliability and are not responsible or liable for any direct, indirect or consequential losses from its use. Any such information may be incomplete or condensed and is subject to change without notice.Visit eastbayis.com or more information regarding East Bay Investment Solutions.
If you need help navigating your finances, talk to Kim Spencer by clicking the link below!
Ask Kim