The Week That Was - April 4, 2025

What Happened This Week

Tariffs.

Unless you have been completely isolated from the news cycle this week, you know that April 2nd was so-called "Liberation Day" when President Trump announced what would be the most significant tariffs since 1930. Unsurprisingly, the market reacted by swiftly selling off as fears of inflation plus recession (a.k.a. "Stagflation") entered back into investors' minds. Let's examine some of the finer details as well as explore a path forward for your portfolios.

The Proposed Tariffs

Among a litany of other proposed tariffs, the announcement outlined:

20% tariff increase on goods from the European Union
34% tariff increase on Chinese imports

If implemented, these changes would raise the average U.S. tariff rate from a low of 2.5% to 23% - a level not seen since before World War II.

I had to dig into the recesses of my brain from 7th grade history to remember the name "Smoot Hawley." Those were the tariffs introduced in 1930 to protect American industries, which compounded an already precarious situation.

Market Reaction

As I write this, the S&P 500 is down over 6% on the week, with the entirety of the damage coming in the two days following the announcement. The market is rapidly repricing the risks associated with a disruption to global trade and the increased probability of a recession. Where we go from here is anybody's guess, but if the proposed tariffs are enacted as planned, I would expect more volatility.

Economic Projections

Everything is purely speculation at this point since we don't know if there will be any walkbacks as part of a negotiation process. That being said, as announced, the tariffs would affect virtually every industry. For those who remember the trade tensions with China from Trump's first term, that represented about $360B of goods. This proposal would affect over $3T of imports.

According to Goldman Sachs chief economist Jan Hatzius, "The proposed tariff structure represents the most significant shift in U.S. trade policy in generations. Our models suggest it could add 1.2 to 1.7 percentage points to core inflation within the first year of implementation."

Remember the supply chain disruption caused by COVID? Morgan Stanley's research team says to prepare for a redux, saying, "Unlike previous tariff actions which targeted specific industries, the broad-based nature of these proposals creates unprecedented uncertainty for global supply chains that have been optimized over decades."

UBS projects inflation could reach 4.4% by year-end if tariffs are implemented.

What This Means for Portfolios

We sent out a communication on Tuesday about a general de-risking of our portfolios.

This was not due to us foreseeing the future but rather following a rules-based process for managing risk.

Do I wish we raised more cash? Obviously, but that is spoken with the benefit of hindsight. In an alternate universe, if he announced tariffs that were less than what the market was expecting, we could be looking at a much different situation in the market. We will continue to navigate these waters as best we can, given all of the tools at our disposal.

Questions? Comments? Drop me a line.