Tariffs: Protecting Industries or Limiting Trade?

There has been quite a bit of talk and speculation in the media about what the Trump administration’s tariff policies will do to the economy and markets. Let’s take a closer look at tariffs to see if we can make sense of what has happened and what might happen in the months ahead. Let’s start by understanding what tariffs are along with the possible market and economic impact of tariffs.

Tariffs are basically taxes imposed on imported goods. Their primary purpose is to protect domestic industries by making foreign products more expensive, thus encouraging consumers to buy locally produced goods. Since tariffs can reduce the demand for imported goods, they can also provoke retaliatory measures in response. On the other hand, tariffs may also help shield domestic industries, some critical for national defense, from foreign competition in the short term. The ripple effects of tariffs underscore their complex role in shaping global trade dynamics.

What are the main industries affected by tariffs?

Tariffs can impact a wide range of industries, but the main ones often include manufacturing, agriculture, automotive, technology, and steel and aluminum production. For example, in the manufacturing sector, tariffs may be imposed on raw materials like metals or components. In agriculture, tariffs may be imposed on exported goods like soybeans, meat, or dairy. The automotive industry often faces tariffs on vehicles or parts.

Which countries are most affected by tariffs?

Tariffs can have widespread effects, but certain countries feel the impact more severely due to their trade relationships. For example:

• China: Often targeted by tariffs, especially in trade disputes with the U.S.

• Canada and Mexico: As major trade partners of the U.S., these countries are frequently affected by tariffs on steel, aluminum, and agricultural products.

• European Union (EU) nations: Countries like Germany and France, which export machinery, vehicles, and chemicals to the U.S.

• Developing nations: Countries reliant on exporting raw materials or agricultural products, such as Brazil or India.

We know the potential negative impacts of a rigid tariff policy; higher prices for consumers that could spark inflationary pressure, reciprocal tariffs, loss of jobs, and supply chain disruptions.

On the other hand, imposing tariffs can have positive impacts on an economy. Some of the potential positive impacts are; protection of domestic industries, job preservation, revenue generation, trade balance improvement, and national security.

Let’s agree that whatever side you’re on, tariffs are complex and have varied outcomes. Time will tell whether the current tariff policy is the new norm, or a strategy designed to negotiate a more balanced trade environment.

What I think we can all agree on is that the current tariff policies have ushered in more stock market volatility. Although market declines can be unsettling, history shows they are a normal part of investing. The data below, based on research from Ned Davis Research, highlights the frequency and magnitude of past corrections in the S&P 500.

The market back and forth will probably continue until the full impact of the current tariff policy is better understood. Staying calm during stock market volatility is essential for making rational, informed decisions. As Warren Buffett wisely said, "The stock market is a device for transferring money from the impatient to the patient." Patience and discipline are your greatest allies.

This article was written by Sal D’Angelo, Founder and President of LakePointe Advisors LLC, a fee-based investment advisory firm specializing in retirement, tax and estate planning. LakePointe Advisors is located in Mentor, Ohio and serves all of Northeast Ohio and surrounding communities.

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