Which means financial advisors and their clients will need to retain a long-term perspective as they monitor the fall-out President Trump’s shifting tariff threats will have on their investment portfolios, and their retirement savings.
On April 9, President Trump placed a 90-day pause on a slew of targeted tariffs aimed at countries viewed as wielding unfair trade practices with the U.S. Yet the tariff uncertainty has rocked equity and bond markets around the world while generating fear about potential surges in U.S. inflation rates, unemployment and prices.
David Rolley, portfolio manager and co-head of the global fixed income team at Loomis Sayles, suggests using a fiscal lens, rather than a trade lens, to view the proposed tariffs.
“This is a fiscal tightening. We just hiked taxes on consumers,” said Rolley at a media luncheon held in New York City earlier this month. “We can’t tell them (consumers) that. We’ve got to pretend that the foreigners will pay this. But we’re going to pay it. I’m going to pay when I go shopping. It’s a tax hike.”
Rolley said tariffs are the only mechanism the White House can use to hide a tax hike in a deeply divided U.S. Congress and country. “Any normal tax hike would require a bipartisan agreement along the lines of Bowles-Simpson. We don’t have that agreement. So, what can we do?” he said. “We can hike tariffs. That can be done by decree. They hiked the only tax they could, and it’s a big one.”
The Price of Tariffs
That cost, according to a model developed by the Washington D.C.-based Tax Foundation, will average $2,100 per U.S. household in 2025, a 2% decrease in a household’s after-tax income. The combined cost of the tariff increases proposed in early April would lead to a $290 billion tax increase in 2025.
“Ultimately, let’s remember who pays the tariffs that the U.S. imposes,” said Erica York, vice president of federal tax policy at the Tax Foundation’s Center for Federal Tax Policy. “If we put up a bunch of trade barriers … that’s going to harm workers and businesses in the U.S., who will foot most of that bill.”
While the tariffs hurt U.S. trading partners by reducing the amount of goods they sell to U.S. markets, she said “it is like shooting ourselves in the foot. Because someone else is shooting themselves in the foot. It’s not a good strategy.”
York shared these comments during a Tax Foundation podcast, “The Deduction,” that aired on April 4. The foundation is a nonpartisan tax-policy nonprofit created 85 years ago. It aims to improve lives through tax policies that spark economic growth and opportunity.
York says the recipe to lower trade barriers is to negotiate through cooperation, not through starting trade wars. The foundation estimates the proposed tariffs will shrink the U.S. economy, its output and production, by 0.8%. “And that is before we figure out what foreign countries will do,” she said.
“Retaliation will increase those economic-harm numbers and shrink how much revenues we’re bringing in,” said York. “This is a really, really bad way to try to raise revenue. It comes at a really great cost to the economy, American taxpayers and to workers.”
For example, while a tariff on an imported product could prompt a U.S. consumer to buy a more expensive U.S. product, that shift comes at the expense of other parts of the economy. Consumers buying the more expensive U.S. product then have less money to spend elsewhere, and revenues for other companies will go down. “Tariffs make us worse off and there is a long, long, long line of evidence showing that,” York added.
Impact on Investments
Jonathan Chandler, chief operating officer at Syntax Data, recently said the tariffs will most certainly impact the retirement savings of Americans if President Trump pursues the course he has set. The negative long-term implications of shredding international economic structures, which allowed the U.S. to prosper over the past 80 years, will have negative long-term implications for investors, he said, noting that short-term traders may do better in this environment.
“Global growth is bound to slow if these tariffs stay in place,” said Chandler, adding that unfortunately, “tariffs are a ratchet, much easier to put on than to take off, as reducing them requires negotiating complex free trade agreements.”
Mike Bisaro, president and CEO at StraightLine, cautions investors to think globally.
“It is important for investors not to make emotional decisions out of fear during periods of market volatility,” said Bisaro. “The economic uncertainty caused by the tariffs and U.S. trade policies under the new administration may simply have been the catalyst for expediting an inevitable correction in the market.” In almost all cases, assets invested for the long-term should stay invested, he added.
Brian Huckstep, chief investment officer at Advyzon Investment Management, said he expects the tariff uncertainty to keep impacting investment portfolios in the next weeks, months and years. Yet not necessarily in expected ways. The higher prices created by tariffs reduce the amount of goods and services consumers can purchase, which in turn reduces earnings for corporations inside and outside of the U.S.
Huckstep said it is possible that the entire economic impact of lower future corporate earnings has already been baked into stock prices. “What we feel markets may not have positioned for yet, is the inflationary impact on goods and services,” he said. “That takes multiple months and quarters to flow through into the marketplace.”
Federal Elected Officials Upset
The impact of the administration’s tariff strategy on their constituents has troubled elected officials on both sides of the political aisle.
In an April 8 letter to President Trump, several members of the New Democratic Coalition urged the President to pursue a strategic and sustainable trade strategy that strengthens the country’s alliances, upholds international trade rules and ensures fair competition through robust enforcement mechanisms.
“Tariffs function as taxes on American consumers and businesses, raising the costs of goods and materials essential for domestic manufacturing and production,” the letter stated.
“Industries that rely on global supply chains, including agriculture, technology, and manufacturing, have already reported higher costs due to the tariffs, in addition to increased sourcing challenges — both factors that are leading to price increases for American consumers,” it continued.
The letter was signed by U.S. Rep. Brad Schneider (D-Ill.), the coalition chair; U.S. Rep Chrissy Houlahan (D-Pa.), chair of the coalition’s Economic Growth and Cost of Living Working Group; and U.S. Rep. Don Beyer (D-Va.), chair of the coalition’s Trade and Tariffs Task Force.
Limitations Sought
Some Republicans have also criticized the tariffs as a tax on consumers. “I’m not a fan of jacking up taxes on American consumers,” Sen. Ted Cruz (R-Texas) told Fox Business earlier this month. “So, my hope is these tariffs are short-lived and they serve as leverage to lower tariffs across the globe.”
Senator Charles E. Grassley (R-Iowa) earlier this month co-sponsored a bipartisan piece of legislation with Sen. Maria Cantwell (D-Wash.) that would limit the president’s power to impose and enact tariffs and give Congress more control over the duties. The measure says that within 48 hours of imposing or increasing a duty, the president must explain to Congress the “reasoning” for doing so and submit “an assessment of the potential impact of imposing or increasing the duty on United States businesses and consumers.” It also says any new tariffs will expire within 60 days unless approved by Congress.
‘Political Decimation’ Is Another Threat
An ardent and long-time opponent of tariffs, Sen. Paul Rand (R-Ky.) said Congress is the only government entity with the authority to impose and raise taxes, not the executive branch. The Kentucky senator joined several other Republican Senators in voting with Democrats to reverse some of the tariffs on Canada.
Rand wrote on X after the vote, “Tariffs don’t punish foreign governments. They punish American families. When we tax imports, we raise the price of everything — from groceries to smartphones to washing machines to prescription drugs.
Paul also issued another dire warning earlier this month, saying President Trump’s sweeping tariffs could result in the “political decimation” of the Republican Party. “Tariffs have also led to political decimation,” Paul told Fox News. “When [former President William] McKinley most famously put tariffs on in 1890, they lost 50% of their seats in the national election. When [Smoot-Hawley] put on their tariff in the early 1930s, we lost the House and the Senate for 60 years. So, they’re not only bad economically, they’re bad politically.
Paula L. Green is a New York City-based freelance journalist with more than three decades of reporting and editing experience that spans coverage of international business and finance issues to murders and politics at the Jersey Shore to presidential press conferences in Argentina and Mexico. She can be contacted by plgreen12004@gmail.com. To read more of her articles, click here.
