The Trump administration has caused some volatility the past few weeks with its tariff strategy. President Trump’s main idea is that tariffs can make domestic products more competitive. For example, if all foreign steel has a 25% tariff, then all domestically made steel will be able to gain market share. This subsidizes domestic products and “in theory” creates jobs within the US borders (it creates an incentive for companies to build and manufacture items within the US instead of abroad). Unfortunately, there are many side effects of tariffs, and most all economists agree that tariffs lower GDP (i.e. the pie for everyone shrinks a bit). Another big side effect is that tariffs can cause inflation. In our steel example, if the domestic manufactures have a 25% advantage from steel tariffs, they can charge more for their product and STILL be cheaper than the foreign competition. This distorts the market and can lead to inflation. Additionally, the distortion of normal market forces (i.e. who can make the best product at the best price) leads to favoring some industries over others. The whole idea behind capitalism is that the flow of capital goes to the best ideas with the most potential. For a robust and dynamic economy, you want the best ideas and innovations to get the flow of capital that they need to grow – a distorted market from tariffs will lead to inefficiencies and could hamper US growth. While the notion of bringing back manufacturing jobs to the US is noble, tariffs are not the best way to go about creating jobs.
Is there any good news in all the tariff uncertainty? Well, for Verisail clients, we are extremely well-diversified. Most all of our portfolios hold a large proportion of their stock allocation outside the US market. While US markets has been volatile from the back and forth of tariff talks (down 3-5% for the year), developed international stocks are up 10%+ and emerging markets stocks are up approximately 4-5% year-to-date. Global real estate is up approximately 3% for 2025 and the bond market is also positive. My point: The news outlets get more attention if they act like the sky is falling. If you had only an S&P 500 portfolio, you may be regretting that in Q1 2025; however, research shows that well-diversified global portfolios achieve similar returns to US only portfolios with less volatility. The start of 2025 is reminding investors who “forgot” about those investments outside the US that international stocks can reduce risk.
If you have questions about your portfolio or any current events and how they impact you, please reach out to us. We would be happy to discuss your concerns with you.
Disclosure: Asset returns are approximate and based on the date of writing. Past performance is not indicative of future results. Readers should not take this article as advice but general information. Reach out to your advisor for specific advice for your situation.