Tariffs
Let’s start with the basics – what is a tariff?
I’m sure we all know the answer to this by now…
A tariff is a tax or duty imposed by a government on imported or exported goods. It is used to regulate trade, protect domestic industries, or generate revenue.
Governments use tariffs to make foreign goods more expensive, encouraging consumers to buy locally-produced alternatives. However, they can also lead to trade disputes and higher prices for consumers.
What happened on America’s ‘Liberation Day’?
The tariffs that were imposed on ‘Liberation Day’ are of a reciprocal nature, meaning that countries are free to retaliate with their own tariffs on the US.
Some of the standout tariffs that Trump has imposed across the globe:
· China 34%
· India 26%
· Japan 24%
· EU 20%
· UK 10%
Additionally, 25% tariffs have been applied to all foreign automobiles sold in the U.S.
So, why has Donald Trump introduced new tariffs?
1. To Reduce Trade Deficits – the US is importing more than it is exporting with countries like China, Mexico, and Germany.
2. To Protect American Jobs & Industries – the Tariffs are meant to discourage imports and boost American manufacturing. With the goal of making American-made products more competitive.
3. Tariffs were used as leverage to push countries into better trade deals for the U.S.
How are the Markets reacting?
The Markets were expecting new tariffs, but I think we can tell from the reaction that they weren’t expecting tariffs at this level.
The below chart shows in grey the eight bear markets in global equities, a bear market is where valuations are down 20% or more. History shows that equities typically recover and go on to post strong results over the long term, so history is telling us to hold steady.
Chart Source: Vanguard
How should the investors react?
- Tune out the noise – don’t check the valuations constantly.
- If you’re so stressed, you can’t sleep it may be time to revisit your attitude to risk – pick up the phone and we can talk about this.
- Control what you can – if you are regularly withdrawing funds from your investments – are the withdrawals at the right level could you reduce the withdrawals to give the funds more time to recover?
- Remain diversified – hold a variety of asset classes and geographies that meets your attitude to risk, Bonds can help during downturns and international exposure offers exposure to markets that may be positive when others are not.
- Communicate – if you have any questions or want to discuss this with me – pick up the phone.
This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.