On April 2, 2025, the U.S. administration announced sweeping new tariffs aimed at virtually all U.S. trading partners.  The announcement, described by President Donald Trump as “Liberation Day” for U.S. trade, represents one of the most significant shifts in trade policy in decades.

In plain terms, a tariff is a tax that governments place on products imported from other countries.  The new plan has two parts: a broad 10% baseline tariff on all imports from every country, and a more aggressive layer of country-specific tariffs targeting nations with large trade surpluses with the U.S.  Notably, these targeted measures include a 34% tariff on imports from China (on top of existing duties), and a 20% rate on goods from the European Union.  Altogether, products from more than 180 countries and territories will be affected – resulting in what could be the highest effective U.S. tariff rate in over a century. 

Why is the administration doing this?

The motivations behind these higher tariffs – whatever one’s view of the policy – are a mix of economic strategy and political positioning.  By raising the cost of imported goods, the intent is to make American-made products more competitive, potentially encouraging companies to reshore manufacturing and reduce dependence on global supply chains.  Tariffs can also generate additional revenue for the federal government. 

The strategy is a risky one.  Because tariffs function as an extra cost on imported products, and thus create ripple effects through the economy.  For consumers and businesses, a 10% (or 20%… or 34%) import tax could mean price increases on a wide range of imported goods.  Everything from smartphones and televisions to clothing, household appliances, and everyday grocery items may become more expensive for U.S. buyers. 

Market Response

The initial market reaction was swift and negative. U.S. stocks fell sharply following the announcement, driven by fears that the tariffs could slow economic growth or spark inflation. Companies that rely on global supply chains are scrambling to assess the impact and are now evaluating their options – pass increased costs to consumers or absorb them through lower profit margins – neither of which is a particularly attractive option.    

It’s worth noting that President Trump and his advisors view tariffs, at least in part, as leverage for negotiations. By hitting trading partners with such steep import taxes, the administration may be seeking to apply pressure to secure more favorable trade terms.  If new trade agreements are reached, there is potential for these tariffs to be reduced or rolled back.          

The key question now is how the rest of the world will respond. While some countries are calling for urgent negotiations to prevent escalation, others – including China and the European Union – have already indicated plans to implement retaliatory tariffs.  If these exchanges intensify, there is a risk of broader trade conflict. 

The baseline tariff is scheduled to go into effect on April 5, with the country-specific tariffs following on April 9.  This leaves a narrow window for potential diplomatic resolutions and last-minute adjustments. 

Sectors to Watch

Not all industries will be affected equally.  Companies that rely heavily on imported goods or global supply chains – such as those in consumer electronics, apparel, and segments of the auto industry – are likely to face immediate headwinds.  Tariffs raise input costs, and in many of these highly competitive, price-sensitive markets, companies may struggle to pass those increases on to consumers. The result: compressed margins, supply chain disruptions, and difficult decisions around sourcing and pricing strategy.

U.S. exports aren’t immune either. In prior trade conflicts, sectors like agriculture and aerospace have frequently been targeted by retaliatory tariffs. Should global trading partners respond in kind, companies that depend on access to global markets could also experience reduced demand and greater uncertainty. 

On the other hand, companies with a predominantly domestic footprint or those that compete directly with foreign imports may be better positioned in this environment. As imported goods become more expensive, U.S.-based firms with localized manufacturing, supply chain resilience, or stronger pricing power may gain share.  Businesses involved in infrastructure services, specialty distribution, or essential domestic operations are particularly well-situated to benefit from a shift toward reshoring and increased economic self-reliance.

At the same time, some areas of the market remain largely insulated from the direct impact of tariffs. Businesses offering digital or subscription-based services, operating within regulated domestic industries, or those with minimal reliance on physical goods or international sourcing may continue to perform steadily. 

Ultimately, the long-term impact of the new tariff regime will depend not only on policy execution, but also on how companies adapt and how international trading partners choose to respond.  Supply chain flexibility, pricing power, and operational agility will be critical differentiator in this evolving environment.    

Our Perspective

We have been anticipating the potential for major trade disruptions, and have proactively adjusted portfolios with a more defensive stance.  This included maintaining below-market exposure to high-valuation technology names.  In the latter part of last year and into early 2025, we also sold or trimmed several positions and raised defensive cash reserves across both our Dividend Focus and Global Growth strategies.  For balanced accounts, we strategically rebalanced our equity allocations where appropriate, and lengthened our bond maturity ladder to take advantage of higher yields.  More recently, rather than trying to call a market bottom, we have been redeploying capital into high-quality investments as compelling opportunities arise.

Looking ahead, we expect to accelerate the deployment of cash where appropriate, as ongoing volatility creates openings to invest in fundamentally strong businesses at more attractive valuations. We have already begun selectively putting capital to work across our strategies – placing heightened focus on companies with durable competitive advantages, domestic resilience, and the potential to benefit from the evolving trade environment.  Our investment team continues to evaluate each holding for its relative sensitivity to the new tariffs, and stands ready to make timely, deliberate adjustments to better align portfolios with both the risks and the opportunities presented by this shift in policy. 

As always, we’re here to discuss how these or other economic changes may impact your financial plan. While trade policies may shift, our dedication to your long-term financial goals remains steadfast. Thank you for your continued trust, and we will keep you informed as this situation evolves.