The impact of the Trump Tariffs on your portfolio

Matthew Unger |

The way the media has treated everything you have seen about tariffs has left out a few important details that we feel need to be addressed. In order to fully understand the impacts on client portfolios, we would like to explain our rationale herein. The Smoot-Hawley tariffs that were a contributor to the Great Depression were nearly 4x the total amount of the current proposed tariffs by President Donald Trump. If all China tariffs were to go through today, it would barely equate to 1% combined total US and China GDP. Not nearly the trillions needed to be wiped off of global GDP to wallop us into a recession. We believe we are in a classic probability vs possibility scenario, and the media has failed to do a basic Google search to understand this. Is it possible the U.S. proposes tariffs that are Smoot-Hawley-like? It’s possible. Just like an asteroid colliding with earth on Friday is possible. But how probable is it? This is where we will dive in below…


Before we go further, we at Focus Asset Management and our portfolio management team are politically agnostic when it comes to making investment decisions with our clients’ portfolios. Our own political affiliations have nothing to do with the markets, and the markets have shown time and time again that they do not care about which President is in office, let alone their political affiliation. In the short term, markets are a voting machine (much like the American electorate), whereby they do take into account what the news says and what certain nationally influential people on Twitter tweet, but in the long term they’re a weighing machine. They care about fundamentals like corporate earnings and the growth of economies. They don’t care about “covfefe” in the long term, and they certainly don’t care about steel or aluminum tariffs that amount to a mere 25% increase. Let’s discuss further.


Here’s a topic: what most people forget is that the previous presidential administration raised Chinese cold-rolled steel tariffs to the tune of 522%. Discuss. Nobody in the media talked about it then, and no investor baulked at it, and quite frankly nearly nobody remembers it now. Just like nobody remembers who came in second place in the 2017 Super Bowl, unless you are/were an Atlanta Falcons fan. Maybe that’s a bad example. They blew one of the largest leads in NFL Superbowl history, but we digress. The market did not tank, and no, the US economy did not go into recession like the pundits claimed. The naysayers were once again wrong, and the market would go on to rally with historically low volatility in 2017 not seen since 1965. This does not mean there weren’t individuals in the steel industry that felt negative effects, or that there wasn’t a human toll felt in the great steel towns of the U.S., but it was not nearly the “wallop” needed to derail the current bull market. Additionally, the steel manufacturing industry has been slowly decimated decade over decade. Not by some foreign power, but by other materials that are more efficient both in strength and in cost replacing them slowly overtime. Remember the slide rule? Remember calculators? Now we have Alexa to figure out math for us. Back to the President and those scary tariffs…


We expect the President to continue to do what he has done in the past with Chinese President Xi Jinping of China, pound his chest and make victorious claims to claim a victory over China in the current “tariff war”. President Trump did this before his previous meeting with Jinping in December of 2019, and we expect it to be no different in the next meeting not unlike the meetings yesterday in Beijing. The “trade deadline” is set for March 2020. This has been a tactic he has used throughout his presidency and will likely continue to use. We would not be surprised if he were to push this deadline further out into the 2020, and we certainly expect for the President to strike a “trade deal” (even if in name only) in time for the 2020 election. Remember, even if he is successful in the trade tariffs on steel alone, it is 4.7% of the tariffs enforced by the Obama Administration, and we all know that the economy did not derail, and the markets did not tank when he did this.


“So what does this mean for me, Matthew? I now understand the tariffs really are not a threat to the longevity of my portfolio, so what should I expect going forward?” As we explained earlier, we advise maintaining a long-term perspective and not making any knee-jerk reactions in the interim. Remember, markets are an efficient mechanism of wealth transfer from the patient to the impatient. All it takes is one bad mistake to derail you from your long-term objectives, and there is almost a certainty of failure when you abandon your plan. Stick to the plan and avoid making decisions based on emotion or by reacting to the “fear mongering” talking heads in the news media. When the bear market hits eventually, the nay-sayers will have their day, but even a broken clock is right twice a day. Remember that investing is a probabilities game and not a possibilities game. Being right more than you are wrong is the objective, not being perfect 100% of the time.


We believe our sources to be accurate and truthful to the best of our knowledge and are forward-looking in nature. Our opinions can change at anytime without notice. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. Copyright 2019 Focus Asset Management.