With the U.S. government’s recent tariff announcements, the landscape is shifting, and the ripple effects are being felt across industries, from consumer goods to manufacturing. As we close out Q1 2025, these evolving trade policies are adding a new layer of complexity to the economic outlook, including potential impacts on inflation, growth, and market volatility.

What’s Changed?

Starting April 5, a 10% tariff will be applied to all imported goods, followed by additional tariffs starting April 9, specifically targeting countries with which the U.S. runs a trade deficit. These tariffs will be layered on top of existing ones, meaning import costs for businesses and consumers are likely to rise.

Some sectors, such as pharmaceuticals, autos, and semiconductors, are exempt or partially exempt from these new tariffs. These measures were enacted under a declared national economic emergency, which gives the Administration the authority to adjust these tariffs over time.

Why This Matters

If fully enacted, these tariffs would mark a significant rise in trade levies, with notable negative implications for U.S. consumers. The goal is to rebalance global trade imbalances and strengthen U.S. manufacturing, but the near-term effects could be disruptive:

• Recession Risks: There’s a possibility of slower growth ahead if tariffs significantly disrupt supply chains or dampen consumer activity.
• Inflation: We may see price increases in categories like electronics, clothing, and autos. If demand softens, these price pressures may only be temporary.
• Tight Policy: With the Federal Reserve cautious on inflation and government spending tightening, the economy faces meaningful headwinds.

Additionally, tariff rates may fluctuate depending on how other countries respond, adding another layer of uncertainty for businesses and markets.

Market Snapshot

Markets generally don’t respond well to surprises, and the recent announcement has added to the already high volatility. Investors are rotating into more defensive sectors, while high-growth areas like tech are facing pressure. Bonds and cash are seeing increased demand as investors seek safer ground.

Your Portfolio

We’ve been positioned for volatility this year, and so far, that has served our clients well. We’ve reduced exposure to areas we saw as vulnerable, such as global bonds and high-yield credit, while leaning into flexible fixed-income strategies and being selective in equity markets. Active management and diversified real asset exposure have provided key advantages.

We’re not making any immediate changes to portfolios but are closely monitoring any developments. If markets pull back meaningfully, our bias would be to lean in: not to time short-term moves but to take advantage of opportunities when pricing dislocations emerge.

As always, if you have any questions or would like to discuss how these developments impact your personal plan, please don’t hesitate to reach out to your Advisor.

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