President Trump likes tariffs.
According to the above chart from JP Morgan, the proposed tariffs are significantly higher than they have been in decades.¹
The US stock market is indicating that it's not a fan, as the main indexes are off the highs. Even the President noted that these kinds of things would cause a "little disturbance".
Not all stocks are disturbed, though.
European stocks have outperformed American stocks year to date.
Should we "Make America Europe Again"?
Wink, wink.
Hopefully Trump supporters and Never Trumpers alike can laugh at that. A sense of humor can be a tonic in these tribalistic days.
The lesson from that chart is why diversification should likely play a role in your investment portfolio
Another bright spot amid the decline is that the current sell-off has primarily affected just two market sectors: technology and discretionary.
Readers of this blog know that I'm not interested in mixing politics and portfolios, so remember the following chart when considering the current political tensions:
Back to tariffs.
Many in the President's administration think this disturbance will eventually make Americans better off by doing things like reshoring and bringing manufacturing back to America, limiting drugs trafficked across borders, lowering the trade deficit, etc.
Others, like noted investor Warren Buffett, view it differently and see tariffs as a "tax on goods" because the "tooth fairy doesn't pay them" and even "an act of war, to some degree." Economist Tyler Cowen, professor at George Mason University, shared in a recent Bloomberg column that many economists understand that higher tariffs “do not, in general, reduce trade deficits” and that the President’s desire for a lower trade deficit and direct foreign investment “work against each other”.2
We shall see.
I'm no economist, and the US economy is extremely complex. It's hard to know what the first and second-order effects of such policies are, but the uncertainty around where this will all end up has the stock market rattled. DataTrek notes that: "Mentions of the word 'tariff' doubled and those for 'uncertain/ty' nearly tripled in the Fed's latest Beige Book out yesterday vs. mid-January."3
What investors need to know is that increased uncertainty and volatility, while painful, may also result in opportunity. JP Morgan's Chief Market Strategist, Gabriela Santos, reflecting on the impact of tariffs during the President’s first administration, writes:
Investment opportunities arise amidst tariff-related volatility: After a challenging 2018, global equities rebounded impressively in 2019, with the U.S. +32%, Europe +26%, and emerging markets +19%, led by multiple expansion. As reality proves less harsh than feared, short-term sell-offs tend to be short-lived. This includes international markets that may face tariff threats early next year but could eventually see a reprieve.⁴
The pathway to opportunity, though, is not always enjoyable.
Here is the takeaway: when uncertainty increases, we can expect increased volatility; however, you must be careful in trying to guess what the market may or may not do based on the constant stream of news updates. If you change your portfolio as much as the news changes on tariffs, you might make a trade that is more contingent on the present than where you want to be financially in the future—and drive yourself a little bonkers all along the way.
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Sources:
1. Guide to the Markets, February 28, 2025. Accessed online: https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
2. “The Case Against Tariffs is Getting Stronger”, Bloomberg column published March 6, 2025. Accessed online: https://www.bloomberg.com/opinion/articles/2025-03-06/the-case-against-tariffs-is-getting-stronger
3. Published March 6, 2025 on X. Accessed online: https://x.com/DataTrekMB/status/1897742465488036040
4. “How should investors think about tariffs in 2025”, 12/20/24. Accessed online: https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/market-updates/on-the-minds-of-investors/how-should-investors-think-about-tariffs-in-2025/