Fundamentally, the topic of tariffs is good. Government leaders implement tariffs on foreign products and services to restrict imports by tacking on additional taxes or fees. The aim is to make foreign products less attractive to domestic consumers.
Establishing tariffs, proponents argue, helps correct trade inequities and boost domestic production and growth. Proponents assert that well-targeted tariffs foster fair trade and create a more open and robust international marketplace.
Opponents, however, argue that establishing tariffs is a highly arbitrary fix to flaws in a very complex international market that will lead to unnecessary and unproductive trade wars that historically have ended tragically. While rectifying apparent inconsistencies and unfair trade practices by some nations, enacting tariffs is viewed as an onerous tactic that is often misinterpreted by trading partners and thwarts growth on the global stage.
A better approach is diplomacy, opponents argue, adding that tariffs inflict too much pain on local markets.
Trump imposed tariffs on Chinese goods as punishment for the country’s intellectual property theft. Trump has also instituted tariffs on steel and aluminum shipments from Canada, Mexico and the European Union.
First, who is expected to gain from the U.S. policy on tariffs?
U.S. steel producers stand to gain significantly.
The U.S. aluminum market has been growing with the implementation of tariffs.
Foreign firms serving the markets affected by U.S. tariffs may benefit. Foreign competitors could seize opportunities in international markets in countries that retaliate against the U.S. policies.
Second, who are the expected losers?
American whiskey exports may suffer. U.S. whiskey producers shipped $737 million in bourbon to Europe in the 12 months prior to March 31.
Harley-Davidson and other U.S. motorcycle manufacturers say tariffs will put the brakes on production.
Prices for beer and soda, in aluminum cans, may rise.
Tariffs – and the potential for a trade war – will most likely loom heavy on the stock market. Markets do not like uncertainty.
Major investors, at this point, are breathing a little easier, as the U.S. stock market seems to be adjusting to the news of the tariffs. Traditional wisdom suggests trade wars don’t produce positive, short-term results.
While U.S. stocks have largely climbed to unprecedented heights following Trump’s “Tax Cuts and Jobs Act” and other economic incentives in late 2017 and early 2018, the market has undergone some remarkable shifts, including the sudden 12 percent drop in February 2018. Fluctuating markets have been historically the norm.
Despite the political fury and the heated exchanges on the international stage, economists and investment analysts are unsure whether we’ll actually engage in a trade war or how disruptive it may be.
Many argue if trade disputes escalate, economic growth in the United States would slow by blocking supply chains, lowering commercial confidence and increasing economic uncertainty.
The bottom line for investors may be what the news media says about tariffs and the potential for trade wars and how the market responds.
While the prospect of a trade war doesn’t bode well initially for the stock market, some analysts say to stay focused on domestic production.
“If trade wars do escalate, the entire market is going to come under pressure, but even in the ‘ugly’ scenario, sectors with a domestic U.S. focus should at least outperform the broad market,” stated Tom Essaye, founder of The Sevens Report, an investment research firm. FBN
Keith Schaafsma, MBA, CFP
Keith Todhunter Schaafsma, MBA, Certified Financial Planner, is the Senior Investment Adviser at Ascendant Financial Solutions. She has been creating peace for her clients from financial chaos for over 20 years. She and her husband, Pieter, an artist, love to travel and enjoy the wide open spaces of the Southwest with their two cherished dogs.
Securities and Advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Advisory Services offered through Ascendant Financial Solutions, Inc.
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