Trump’s Tariff Shake-Up: What It Means for Markets and Your Investments

This week, on Monday, January 20, 2025, Donald Trump was sworn in as President of the United States. Within hours of returning to the White House, he signed a series of actions revoking 78 of Joe Biden’s policies. Among the many policy shifts, questions remain about Trump’s proposed tariffs on U.S. imports and their potential impact on global economies and markets. Here’s what we know so far.

What Are the Proposed Changes?

Trump has proposed significant tariff increases, including up to 60% on China, 25% on Mexico and Canada, and a blanket 20% on goods imported from all other countries. On his first day in office, Trump confirmed that tariffs for China, Mexico, and Canada would be implemented soon but suggested the universal 20% tariff might be delayed, stating in a very Trump like manner “we may, but we’re not ready for that just yet.”

Lessons from the 2018 Tariff Concerns

Historically, such tariff announcements have generated market volatility due to increased uncertainty and fears of economic disruption. This was the case in 2018 and again at the back end of last year as markets priced in the potential impacts of tariffs under a Trump Presidency.

However, a look back at Trump’s track record, suggests tariff proposals are often used as negotiation tactics. Often, tariff threats have led to talks, which have led to deals resulting in outcomes that were milder than feared. Additionally, the U.S. system of checks and balances limits the President’s ability to unilaterally implement sweeping changes, further reducing the likelihood of extreme measures.

Even if portions of the proposed tariffs are implemented, the broader economic impact is likely to be modest. 2018 highlighted just how successfully businesses could adapt, by swiftly reconfiguring supply chains, shifting production, and mitigating the impact of tariff changes. Despite initial fears, these tariffs did not trigger a bear market or derail economic growth.

This adaptability underscores a critical point: while markets may initially react to uncertainty, businesses have consistently demonstrated resilience and flexibility. Similar dynamics are likely to play out today, reducing the potential for long-term market disruption. However, any potential burden from tariffs would likely fall disproportionately on regions like Europe and China.

Why Tariffs Don’t Usually Cause Bear Markets

A bear market is defined as a prolonged decline in stock prices, marked by a drop of 20% or more from recent highs. For a bear market to emerge, there generally needs to be an exogenous shock of sufficient economic scale to disrupt growth and push the global economy toward recession. Historically, tariffs have rarely, if ever, been the sole cause of a bear market for various reasons:

• Tariffs Impact Specific Sectors, Not the Entire Economy: Tariffs often target specific industries or countries, leading to isolated disruptions rather than systemic economic shocks.
• Economic Fundamentals Are More Important: Tariffs alone rarely weaken broader economic fundamentals sufficiently to cause recessions. Goldman Sachs forecasts a net drag of just 0.2% on US GDP growth in 2025 from tariffs.
• Adaptability of Businesses: Companies are remarkably resilient. They adjust operations, find new suppliers, or pass on costs to consumers, mitigating the long-term effects of tariffs.
• Markets Anticipate and Price in Risks: Financial markets are forward-looking. By the time tariff announcements are made, much of the potential impact has already been priced in, reducing the likelihood of severe, prolonged market reactions.

Our Advice to Investors

At Sigma Private Office, we encourage investors to:

• Stay Invested: Avoid the temptation to time the market or react impulsively to news headlines. Markets reward patience, and overreacting to short-term noise often leads to missed opportunities.

• Keep Perspective: Tariffs, while newsworthy, are unlikely to alter the fundamental drivers of global growth. History shows that tariff fears are rarely a catalyst for bear markets.
• Focus on Long-Term Goals: Volatility is a normal part of investing. By focusing on your end goals, you can navigate through temporary market fluctuations and stay aligned with your financial plan.

Rather than viewing tariffs as an immediate threat, consider them part of the geopolitical backdrop that markets have navigated successfully many times before. With that said, any escalation into a full-blown global trade war could pose a greater risk to economic growth and market stability so we, at Sigma Private Office, will remain vigilant of the evolving situation on behalf of our clients. Nonetheless, by staying disciplined and focusing on long-term opportunities, you can confidently navigate these uncertainties while remaining on track to achieve your financial goals.