Liberation Day Impacts
April 3, 2025
Yesterday’s tariff announcements by President Trump were far more sweeping than what markets had anticipated. This will introduce a new degree of uncertainty and thus greater market volatility. It is imperative that clients remain committed to long-term investment plans, although they may find the current situation unsettling. Here are some brief conclusions relative to the new tariff policy:
- The likelihood of the US economy entering a recession has increased significantly due to these protectionist policies.
- The tariffs will disrupt both trade flows and capital flows.
- Markets are forward looking mechanisms, and thus have been selling off in anticipation of this policy since February, continuing through today.
- President Trump’s newly revealed tariff policy is expected to generate $500 billion in revenue, in addition to the $150 billion of tariff revenue already enacted.
- The tariffs are likely to drive inflation higher in the short term; however, over time, the impact may become deflationary.
- Economic growth is expected to decline, with GDP potentially reduced by approximately 1%-1.5%. This will result in a new lowered growth rate of approximately 1%.
- Retaliatory actions from trade partner countries will negatively affect US exports, not just imported products.
- It is essential to emphasize that our portfolios are structured to withstand various market conditions through diversification and a focus on long-term objectives.
- The Federal Reserve is focused on avoiding policy mistakes and will base decisions on hard data (e.g., unemployment, GDP, CPI), rather than soft data (e.g., consumer sentiment, surveys).
- This cautious approach could result in delayed responses, which may be more detrimental to economic growth given the current restrictive environment.
- Recessions are a normal part of the business cycle. Our client portfolios are designed to handle such events effectively.
- It is possible that some tariffs, especially those not related to national security, could be reduced or eliminated over time.
While these actions can be unsettling, we believe that knee-jerk reactions by market participants may result in far more attractive asset prices than what we have seen recently. We look forward to monetizing such opportunities in client accounts. Should you have any questions or concerns do not hesitate to reach out to your FineMark advisor.
