Weekly Buzz: The real impact of tariffs – and what comes next 🌎

5 minute read

President Trump’s reciprocal tariffs had analysts collectively choking on their morning coffee, twice – first when they were announced, and second when they were paused for 90 days. Here’s a look at what these levies mean for your portfolio, your international spending habits, and what you can do about it.

What’s the policy?

The president wants to balance America's trade deficits – the gap between what other countries sell to the US versus what they buy from it. By taxing imports, the administration hopes to bring manufacturing back and generate billions in tariff revenue that could fund future tax cuts. The formula is surprisingly simple: divide a country’s trade surplus with the US by its total exports, then half that for a “discounted” rate. And make no mistake, these tariffs are global – an uninhabited island near Antarctica and a military base on the Indian Ocean got slaps on the wrists too.

What’s the impact?

US stocks are feeling the brunt of it: as of Tuesday close, the S&P 500 was down around 12% over the past four trading sessions. When a 90-day pause was announced on Wednesday – reverting to a 10% blanket tax except for China, whose tariff was instead increased to 145% total – the S&P 500 jumped 9.5%. Simply put, the markets are on edge right now. Historically, however, these rare moments of extreme market volatility have turned out to be the most profitable entry points over the long run.

For businesses dealing with these levies, the options aren't ideal: raise prices and risk selling fewer goods, or keep prices steady and accept shrinking profit margins. They could move production to the US, but that's an expensive process that takes years, with no guarantee that policies won't shift again. If these tariffs stay in place, it’ll be a one-two punch to economic growth: companies will face higher production costs while consumers pay more at checkout.

It’s a negotiation strategy: apply pressure to bring countries to the table. But not everyone is playing along – China responded with its own "reciprocal" tariffs, now totaling 84%. If negotiations break down, a trade war would be – needless to say – bad for global growth and your wallet. Trump’s new tariffs on Chinese goods means that iPhone production costs could jump from $580 to $850, according to TechInsights.All in all, expect more market volatility as international responses emerge.

What’s the takeaway?

When markets react to headlines, it's worth keeping perspective – it’s not the first time we’ve seen this. Volatility is the price investors pay for long-term growth potential, and when viewed across decades, these dips become footnotes.

For stability: Investing across different regions and asset classes – diversification – provides a buffer against volatility in any one market. When tariffs impact one market, having exposure elsewhere helps balance your portfolio – something our General Investing portfolios are designed for.

For the long-term: Dollar-cost averaging remains the most reliable strategy in uncertain markets. By investing a fixed amount regularly, you're naturally buying more shares when prices fall. This removes emotion from investing and turns market dips into market opportunities.

For the cautious: Defensive assets like gold, easily accessible with our Flexible portfolios, can also help with volatility. For those who really want to play it safe, keeping cash in a money market fund, like with our Simple portfolios, gives you more flexibility and better yields than a fixed deposit.

(For more on keeping your long-term wealth rising when markets are falling, see our Advisory Letter.)

This article was written in collaboration with Finimize.

📖 Simply Finance: Trade deficit

A country has a trade deficit when it imports more goods and services than it exports. While some might see it negatively – like "losing" to another country – there is more nuance to it. Trade deficits often result from domestic economic strength, when consumers and businesses have the purchasing power to buy foreign goods. In practice, trade balances are simply one factor in a global system of exchange.

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