Trump Tariffs: Take Two
The headlines on US trade policy are heating up, and tariffs are back in focus.
2.4.2025
The headlines on US trade policy are coming in hot! Stepping back, we see two things to unpack. The first is the idea of tariffs as a negotiating tactic. In certain situations, tariffs (and short-term economic pain) might help push people to the negotiating table. We can’t offer much commentary here- we’re students of financial markets, not diplomacy.
The second idea is tariffs as economic policy. Tariffs protect the few (domestic producers) at the expense of the many (consumers). Those few will always cheer for their protection, no matter how backward the economic logic. As free-market capitalists, we at Cobblestone prefer less, not more, government interference.
Milton Friedman once illustrated the power of free markets with a simple pencil. Despite its modest appearance, a pencil is the product of a vast, interconnected global economy. It requires wood from one country, graphite from another, rubber from yet another, and countless industries—from mining to transportation—to come together, all without a central planner. This is the miracle of capitalism: it thrives when commerce flows freely.
Tariffs disrupt this natural efficiency. By imposing artificial costs on trade, tariffs distort markets, limit competition, and ultimately reduce economic growth. Protectionist economic policies intend to safeguard domestic industries but ignore the deeper consequences: higher prices for businesses and consumers and inefficiencies across the supply chain. When other countries retaliate with their own measures, it further stifles trade and growth. This is where we find ourselves today.
In an escalation, President Trump announced broad tariffs on Canada, Mexico, and China and also declared his intention to impose tariffs on the European Union. During the first Trump administration, tariffs targeted specific industries to gain leverage in negotiations. For example, President Trump put tariffs on Canada and Mexico to gain leverage while renegotiating the North America Free Trade Agreement (NAFTA) during his first term.
The currently announced tariffs are more broad and higher than originally expected. Adding fuel to the fire, other countries are retaliating with their own tariffs and restrictions. More restrictions and higher taxes mean a less efficient economy and higher prices.
Tariffs can also escalate into a larger trade war which affects business and investor sentiment. Inventing new products, developing new markets, and making multi-decade investments is risky in the best of times. The uncertainty of a trade war, particularly with allies like Canada, Mexico, and the EU, increases volatility and makes long-term planning even harder on businesses and their owners.
Faced with the possibility of a trade war, what can I do as an investor?
A highly disruptive trade war is unlikely to continue long. Mid-term elections are just 21 months away. Republicans’ fragile majority is unlikely to fare well if the economy is struggling because of a self-inflicted policy like tariffs.
Diversification and balance are key. At Cobblestone we’ve positioned ourselves to weather this volatility. For example, tariffs are inflationary and will put upward pressure on interest rates. Our fixed income strategies were already positioned for such a scenario. Additionally, our allocation to alternative investments helps insulate us from inflationary pressure and bouts of short-term volatility.
Finally, we need to remember this is nothing new. The first Trump administration was also marked by temperamental trade and foreign policy, yet the financial markets (and Cobblestone) navigated those years successfully.
Disclosure: Unless stated otherwise, views, opinions or forecasts expressed in this blog are those of the author and do not necessarily reflect those of the Adviser and/or its employees. The contents of this blog are distributed for informational purposes, and are not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Nothing in these communications is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational, and illustrative purposes.