April 2025
This new tariff regime marks the most radical shift in U.S. trade policy in generations.
On April 2, 2025, President Donald Trump declared a new era for U.S. trade policy — one marked not by diplomacy, but by tariffs. In a sweeping announcement he dubbed “Liberation Day,” Trump laid out plans to impose a 10% blanket tariff on all imports, effective April 5. And for 60 countries labeled the “worst offenders” — nations accused of hiding behind layers of non-tariff barriers — those rates will spike dramatically, with so-called “reciprocal” tariffs kicking in on April 9.
This new tariff regime marks the most radical shift in U.S. trade policy in generations. Trump’s vision is clear: punish trade partners he believes have taken advantage of the U.S., bring manufacturing back home, and fund government priorities with tariff revenue. Whether it’s a masterstroke of economic nationalism or the opening salvo in a new global trade war remains to be seen.
Either way, April 2 may go down in history — not just as “Liberation Day,” but as the day the global trading system tilted on its axis. What President Trump calls liberation may feel more like shock therapy for Wall Street — and for global supply chains already stretched thin. Given the uncertainty and surprise, markets in the U.S. and abroad are significantly down in response. Let’s hope the tariffs are intended as a “shock and awe” strategy to bring the biggest U.S. trade partners to the negotiating table and willing to make significant concessions.
What, Why & When
The White House argues that the April 2 tariffs match the treatment that U.S. goods receive abroad, citing high foreign duties, regulatory blockades and currency manipulation.
Here’s how the tariff rollout breaks down:
- Baseline Global 10% Tariff: Hits all imported goods starting April 5 at 12:01 a.m. EDT.
- Plus Country-Specific Tariffs of up to 60% starting April 9.
The above tariffs are in addition to a 25% tariff on all foreign-made cars that took effect midnight April 2 and the 25% global tariffs on steel and aluminum. There is, however, a carve-out for made-in-the-USA portion of cars imported from Canada and Mexico, and auto parts from those countries are exempt until May 3.
From our standpoint, as George W. Bush once quipped in a debate with Al Gore, there seems to be some “fuzzy math” in defining reciprocal. Still, there’s a glimmer of pragmatism: The Trump administration is saying they are open to negotiating reciprocal reductions — if other nations play ball.
Pros & Cons
Proponents argue there will be strong economic benefits from high U.S. tariffs, including encouraging other countries to lower their trade barriers; attracting more companies to produce inside the U.S.; fostering more equitable trade relationships; and incentivizing other countries to stimulate their domestic demand for goods instead of emphasizing growth in their exports. Practically speaking, tariff concerns have brought down sentiment which may lower the bar for wins/concessions to emerge as upside catalysts for markets.
However, there are wide-ranging concerns about the tariffs. According to a Fitch Ratings economist, the U.S. effective tariff rate would be 22% if the April 2 tariffs are imposed as presented, up from just 2.5% in 2024. This would be the highest level of U.S. tariffs since 1910. Among the major concerns:
- Potential for retaliation and escalating trade wars could harm global trade. Europe, for example, is threatening to impose duties and restrictions on U.S. services, including financial and digital.
- Higher risk for U.S. stagflation. Tariffs could lead to higher prices for U.S. consumers and increased costs for industries reliant on imported goods, putting a drag on growth.
- Implementation challenges. Accurately assessing and matching the myriad tariffs and non-tariff barriers imposed by different countries is complex and achieving reciprocity may not be as straightforward as intended.
- Legal and diplomatic concerns. Some experts here and abroad argue that the unilateral imposition of tariffs under the guise of reciprocity may violate World Trade Organization (WTO) rules and could strain diplomatic relations with key trading partners.
Market Implications
Volatility is likely to be the norm until there is more clarity on the tariffs and signs of productive follow-up trade negotiations. Should these policies remain in effect for any material period (and countries retaliate), a global economic slowdown is almost assured.
However, we are seeing pushback from Republican Senators, four of whom enabled a Senate resolution against Canadian tariffs. While this is not likely to shift policy in the short term, it is a sign that support for punishing tariffs may be weakening.
The “Trump put” — the level the U.S. stock market would need to hit before Trump backs off his positions — seems lower than during his first term. However, he still seems to care about stock market levels as a barometer of his success.
When there’s an increased perception of risk, there is also more opportunity. The silver lining from the market’s Trump tariff tantrum might be compelling the Fed to cut interest rates sooner and faster, thereby stimulating the economy and giving the flagging U.S. housing sector a much-needed boost. Additionally, the Trump Administration is extra motivated to get its tax cuts through Congress by summer and also increase deregulation efforts.
With all of that said, reacting to headlines is not how we manage money. Our job is to stress test your portfolio when times are good (as we have experienced over the past two years), assess the probability of you achieving your goals through up and down markets, evaluate your tolerance for downside risk and adjust your portfolio accordingly when we can play offense.
When markets are selling off and investor fear is high, that is not the time to make changes to long-term, strategic allocations. While we do not believe in being tactical, we do believe in disciplined rebalancing. When others are fearful and are taking risk off, rebalancing into exposures that have sold off back to your target strategic weight can be accretive over the long term.
As we continue to emphasize, the situation is fluid. At press time there are more questions than answers. We will continue to evaluate as events unfold, attempting to identify the opportunities and risks. Regardless, sticking with a long-term plan is the order of the day.
US Economy: Consumer concerns.
The final estimate for U.S. GDP in Q4 2024 was 2.3%, with Q1 2025 GDP expected to soften. The Fed’s favorite inflation gauge (Core PCE) rose 0.4% in February, the third consecutive increase, prompting the Fed to wait for “greater clarity” before deciding on additional interest rate cuts. Rising prices, tariff uncertainty and wage growth (+1% Q1) that is badly lagging inflation are headwinds for consumer spending and the job market.
US Stocks: Bad news cycle.
Government-led initiatives, from higher U.S. tariffs to cuts to the federal workforce, plus no resolution for the wars in Ukraine and Gaza, roiled equity markets in March. U.S. equities fell broadly, with defensive energy (+3.5%) and utilities (+0.2%) the only positive sectors. Consumer discretionary and technology each fell 8.3% on dissipating Mag 7 stock euphoria. Small caps continued a tough start to 2025, down 9.5% year-to-date.
Foreign Stocks: Growing lead.
Continuing a strong start to 2025, emerging markets (EM) showed leadership beyond China (+2.0%), with India (+9.4%) boosted by anticipated easier monetary policy and valuations attracting foreign investment. Foreign developed equities are still the strongest performers through March (+6.9%) but they fell in March as investors digested the consequences of elections in Germany and a change in the country’s policies to favor higher spending.
Fixed Income: Spreads widen.
The Fed made no changes to interest rates during its March meeting, indicating that any future moves would be data-dependent. While U.S. Treasuries gained 0.6%, riskier bonds fell. High yield debt (-1.1%) led the month’s drop in corporate bond prices, as credit spreads widened and yields increased. Higher issuance and potential cuts in federal funding continued to be headwinds for municipal bonds (-1.7%), making muni yields more attractive.
Real Assets: Hard asset allure.
Gold (+9.5%) continued a glittering start to 2025, as market uncertainty feeds interest in precious metals and other stores of value. Oil (+2.8%) gained on potential supply disruptions as the U.S. considers extra tariffs on countries that purchase oil from Russia or Iran. Infrastructure stocks (+2.1%) benefited from their defensive characteristics, while dimming rate cut hopes and potential for higher defaults hampered REITs (-2.4%).
Alternatives: Mixed bag.
Hedge funds tend to navigate volatile markets by finding pockets of value to exploit on an incremental basis. Year-to-date returns aren’t eye catching. Nevertheless, absolute return strategies are up 1.2% while the U.S. equity market has stumbled. Other purported diversifiers such as cryptocurrency favorite bitcoin (-9.1% through March) have demonstrated that incorporating crypto in portfolios should be done thoughtfully with an expectation for a volatile ride.
Source of data: Bloomberg
Equities Total Return
| MAR | YTD | 1 YR | |
|---|---|---|---|
| U.S. Large Cap | (5.6%) | (4.3%) | 8.2% |
| U.S. Small Cap | (6.8%) | (9.5%) | (4.0%) |
| U.S. Growth | (8.4%) | (10.0%) | 7.2% |
| U.S. Value | (2.9%) | 1.6% | 6.6% |
| Int’l Developed | (0.4%) | 6.9% | 4.9% |
| Emerging Markets | 0.6% | 2.9% | 8.1% |
Fixed Income Total Return
| MAR | YTD | 1 YR | |
|---|---|---|---|
| Taxable | |||
| U.S. Agg. Bond | 0.0% | 2.8% | 4.9% |
| TIPS | 0.6% | 4.2% | 6.2% |
| U.S. High Yield | (1.1%) | 0.9% | 7.6% |
| Int’l Developed | (1.3%) | (1.3%) | (1.0%) |
| Emerging Markets | 0.1% | 1.0% | 7.2% |
| Tax-Exempt | |||
| Intermediate Munis | (0.7%) | 0.7% | 2.5% |
| Munis Broad Mkt | (1.7%) | (0.5%) | 1.4% |
Non-Traditional Assets Total Return
| MAR | YTD | 1 YR | |
|---|---|---|---|
| Commodities | 3.9% | 8.9% | 12.3% |
| REITs | (2.4%) | 2.8% | 9.2% |
| Infrastructure | 2.1% | 4.6% | 18.8% |
| Hedge Funds | |||
| Absolute Return | 0.1% | 1.2% | 4.2% |
| Overall HF Market | (0.6%) | 0.7% | 3.4% |
| Managed Futures | (0.5%) | (2.5%) | (9.0%) |
Economic Indicators
| MAR-25 | SEP-24 | MAR-24 | |
|---|---|---|---|
| Equity Volatility | 22.3 | 16.7 | 13.0 |
| Implied Inflation | 2.4% | 2.2% | 2.3% |
| Gold Spot $/OZ | $3123.6 | $2634.6 | $2229.9 |
| Oil ($/BBL) | $74.7 | $71.8 | $87.5 |
| U.S. Dollar Index | 126.7 | 121.5 | 121.4 |
Our Take
The first quarter of 2025 has certainly tested expectations. After two years of high returns and low volatility for U.S. stocks (albeit amid high interest rate volatility), the script appears to have flipped, with volatility up and U.S. equity markets lagging their international peers.
As CIO Ron Albahary notes above, President Trump’s volatile approach to trade policy has changed the narrative from sticking a “soft landing” to worries about how high tariffs could bring inflation, sour consumer confidence and slow the economy (stagflation, anyone?).
U.S. big tech has been leading the declines, after being a driver of market returns during the past two years. Skepticism about the profitability of artificial intelligence (amid big ongoing spending and low ROI) and exposure to Asian supply chains has supported a rotation towards value stocks, dividend-paying stocks and consumer staples, as well as select international markets whose returns are being boosted by a weaker dollar.
U.S. economic growth, meanwhile, has been slowing. Adjusted for inflation, retail sales in Q1 were down 4% from the prior quarter. The Atlanta Fed’s “GDPNow” model indicated U.S. Q1 real (inflation-adjusted) GDP would come in at -3.7% annualized, down from -2.8% just last week. Going back nearly 80 years, drops in consumer spending have corresponded with either an economy in recession, moving into recession, or just coming out of recession.
Despite higher stock market volatility and signs of a slowing economy, the fixed-income markets remain relatively calm. The increase in credit spreads has been marginal from historically low levels. We will continue to watch for signs of financial stress indicated by further spread widening. Muni yields could also stay elevated near term for two reasons: (1) higher issuance; and (2) the overhang from potential cuts to federal funding programs and tax reform.
In our Q2 Economic Commentary, due out April 24, we explore further the themes below and implications for portfolios:
- Tariff policies: The Trump administration’s erratic and aggressive tariff policies appear to be pushing U.S. inflation higher while negatively impacting consumer and corporate confidence. Some of these higher input costs are winding their way through supply chains alongside higher end-prices for consumers. If this persists, the U.S. could find itself trapped in stagflation.
- Potential short-term recession: The initial policy moves by the Trump administration including tariffs, deregulation delays and spending restraint could be deliberately designed to slow the economy temporarily for a number of key reasons: Force the Fed to lower interest rates as well as to set the stage for a recovery in time for the 2026 mid-term elections. The risk is the economy could slow too much, push up unemployment and induce a self-inflicted downturn more damaging than intended.
- Possible success of Trump’s economic engineering: If the policy moves outlined above play out as intended, a strong economic rebound in 2026 could emerge after a mild recession. Lower interest rates could drive growth and markets could rebound on policy clarity after investors gain confidence in the administration’s long-term strategy.
- Conflicts in Europe and the Middle East: One of the stated priorities for this Administration has been to reduce international aid and our involvement in foreign conflicts. However, so far efforts to negotiate an end to the wars in Ukraine and the Middle East have been unsuccessful. And any global “peace dividend” from broader, non-defense oriented economic activity has not yet materialized.
