Liberation Day & Your Investments

Liberation Day Has Arrived - But How Will Trump's Tariffs Affect Your Investments?

President Trump's long-awaited "Liberation Day" has finally arrived, offering investors some much-needed clarity; though clarity doesn’t always mean certainty. Trump's latest round of tariffs has exceeded expectations, bringing both challenges and opportunities for investors.

These new tariffs are anything but straightforward. A blanket 10% base tariff applies across the board, with additional penalties targeting countries that, in Trump's words, have "cheated America for decades." He even went so far as to say, “in many cases, the friend is worse than the foe.”

The numbers are striking. China now faces a 54% tariff (up from 20%) while the EU is looking at a 20% tariff. Canada and Mexico remain in a state of uncertainty, as negotiations drag on.

The economic impact could be significant. Based on a 2018 Federal Reserve model cited by Bloomberg, these tariffs might shave more than 2% off GDP growth for both the U.S. and China, with inflationary pressures lasting up to three years. Market reactions were swift: European equity futures dropped 2%, while Japanese and U.S. stocks fell by 3% in pre-market trading. Meanwhile, bond prices climbed as investors rushed toward safer assets.

There’s no guarantee that these tariffs will be lifted anytime soon, and concerns are growing over potential EU countermeasures. The administration justifies these policies as a way to fund tax cuts and bring manufacturing back to the U.S., but those shifts don’t happen overnight. Companies that have spent decades building supply chains abroad can’t simply reverse course, leaving investors to weigh the immediate economic disruptions.

However, the real struggle may not be between governments, but between businesses and consumers. Companies will have to decide how much of these new costs they can absorb before passing them along to customers. On the other hand, consumers, who are already feeling squeezed, must either tolerate higher prices or cut back on spending. As we saw in the post-pandemic inflation surge, frustration with rising costs quickly turns into financial strain.

This time, though, there is no cushion of stimulus checks or excess pandemic savings to fall back on. Job market slowdowns could add to the pressure, and falling stock prices may dent household wealth and confidence.

While uncertainty looms, long-term investors who can ride out the volatility may still find opportunities. Staying cautious, diversifying portfolios, and managing inflation risk will be critical.

Curious about how these changes might affect your investments? Get in touch with AI Wealth to discuss strategies for navigating this evolving landscape. Let’s build a plan today that keeps you ahead of the curve.