You can’t turn
on the television, radio or browse the news headlines without being confronted by commentary about China, President Donald Trump's tariffs, and retaliation kicking off an all but certain global trade war. It’s all too much doom and gloom for us, so we thought we’d join the conversation with a less sensationalized perspective.
Refresh of the Basics: What is a Tariff?
Tariff is just another word to describe a tax imposed on imported or exported goods. For goods imported into the US from other countries, the tariff or "import duties" are collected by Customs and Border Protection.
There are several reasons the US government may choose to impose tariffs:
- They serve as a source of revenue for the US government
- They can protect domestic industries from foreign competition by making foreign-produced goods more expensive, thereby making domestic-produced ones relatively cheaper/more attractive.
- Protecting home country industries is also a way to protect US jobs.
- To retaliate or exert economic leverage as an extension of foreign policy. Imposing tariffs on China’s exports is a bargaining chip to improve trade terms and tip the balance of trade between our countries.
Of course, tariffs can have negative considerations as well:
- They can make domestic industries less efficient by reducing competition.
- They can hurt domestic consumers, since a lack of competition allows for price increases.
- They can generate tensions between US industries and across regions.
- Also, any attempt to pressure China using tariffs has the potential to devolve into a cycle of retaliation, known as a trade war.
What should you do?
Ignore the pundits.
No one can predict the impact these new tariff threats will have on investment returns. It’s impossible for us to say what’s going to happen next. We still don’t know:
- How political pressure against tariffs will play out.
- Which countries, goods, and services will be impacted.
- If, or when other countries might retaliate and to what extent.
- The size of any potential impact on portfolio returns.
Ignore the market’s tariff tantrums.
Over time, corporate earnings drive market movements.
We’ve structured long term plans for our clients to avoid irrational decision making in response to financial news such as this. So, do nothing and let’s stay the course.
If all this ignoring and doing nothing is making you crazy; take up yoga, or running, or call us to meet and review your financial plan. We’d be delighted to hear from you.