Knowables: Trump’s Tarrifs
In this edition of our “knowables” newsletter we’ll be covering the Trump administration’s announcement of significant tariff measures. Tariffs are likely to be a big topic of conversation this week, given the President’s promise to impose the postponed tariffs on March 4th. To be clear, this is not a partisan issue, with most Republican presidents favoring free trade, while the Biden administration was quite happy to continue the tariffs imposed by the first Trump administration. As a reminder the topics include:
25% tariffs on all goods imported from Mexico and Canada (excluding energy)
10% tariffs on all goods from China
Potential additional trade barriers on other key imports
These changes could have far-reaching effects on multiple aspects of the economy. In general, tariffs raise prices, cut economic growth, reduce profits, increase unemployment, decrease productivity, widens the wealth gap, and raises global tensions. While the Trump administration touts the ability of tariffs to protect domestic industries, they can also create challenges for businesses and consumers.
Below are some key areas of impact:
Economic & Market Implications
Inflationary Pressures – Tariffs act as a tax on imports, increasing prices for businesses and consumers.
Grocery prices may rise, as Mexico supplies 60% of U.S. vegetable imports and nearly 50% of fruit and nut imports.
Auto prices could increase by as much as $3,000 per vehicle, as 50% of U.S. auto parts are imported from Canada and Mexico.
Energy costs may rise, particularly in the Midwest, where gas prices could increase by up to 50 cents per gallon due to the impact on crude oil imports.
Pressure on U.S. Exports – Retaliatory tariffs from trading partners could negatively impact American businesses.
Manufacturing states may be hit hardest, including Texas, Ohio, and Maine, which rely on exports to Canada and Mexico.
Mexico buys 70% of New Mexico’s exports, including billions in semiconductor chips and electrical components.
Texas exports $20 billion in chips, auto parts, and electrical equipment to Mexico, making up 5% of the state’s GDP.
Sector-Specific Challenges
Automotive Industry: U.S. automakers rely on parts from Mexico and Canada, and a 25% tariff will significantly increase production costs.
Energy Sector:
The U.S. imports over 70% of its crude oil from Canada and Mexico, meaning tariffs could raise fuel prices nationwide.
U.S. fuel exporters may face retaliatory tariffs, hurting their competitiveness in global markets.
Agriculture & Food Supply: Higher tariffs on Mexican agricultural imports could drive up grocery prices, affecting consumer spending and hurt U.S. farmers.
Minimal Impact of Tariffs on U.S. Manufacturing Reshoring
Cost Disadvantages – Higher U.S. labor, regulatory, and energy costs make full reshoring unattractive; companies are more likely to pass costs to consumers or seek alternatives like nearshoring.
Supply Chain Complexity – Many industries rely on global supply chains, making it impractical to fully relocate production to the U.S. Critical components will still need to be imported.
Business Uncertainty – Companies hesitate to invest in U.S. manufacturing due to shifting trade policies, fearing future tariff rollbacks or new agreements that could impact competitiveness.
Alternative Strategies – Instead of reshoring, businesses are more likely to automate, shift production to other low-cost regions (e.g., Southeast Asia, Mexico), or diversify suppliers.
Tariffs may encourage some reshoring in key sectors (e.g., semiconductors, EV batteries), but widespread manufacturing return is unlikely due to high costs and supply chain realities.
Consensus Opinion of Economists on Tariffs
Negative Impact on Economic Growth – Most economists agree that tariffs act as a drag on GDP by increasing costs for businesses and consumers, reducing overall economic efficiency.
Higher Consumer Prices & Inflation – Tariffs function as a tax on imports, leading to higher prices on goods, which can contribute to inflation and reduce consumer purchasing power.
Retaliatory Risks & Trade Wars – History shows that tariffs often lead to retaliatory measures from trading partners, escalating into trade wars that hurt exporters and disrupt global supply chains.
Limited Effect on Reshoring Jobs – While tariffs aim to protect domestic industries, they rarely result in significant job growth, as companies tend to automate or relocate to other low-cost regions rather than bring production back to the U.S.
Market Uncertainty & Investment Deterrence – Unpredictable trade policies discourage business investment and long-term planning, creating volatility in financial markets and slowing corporate expansion.
In our next installment of Controllables we’ll be discussing how to navigate these developments within your investment portfolio.
As always, we're here to help you navigate these opportunities and align your investment strategy with your long-term goals. If you have any questions or would like to discuss how these opportunities may fit into your portfolio, don't hesitate to reach out. Thank you for trusting us with your financial journey, and we look forward to continuing to work together toward your success.
