Executive Summary
- President Trump has imposed sweeping tariff increases on Canada, Mexico, and China – the United States’ three largest trading partners – which are slated to be enacted on February 4.
- At this point, we are doubtful that the tariffs on Canada and Mexico will be long lasting, if enacted at all. Indeed, on a short-term basis, tariffs will, in isolation, cause prices to rise on many goods, and inflation has been cited as a primary economic concern—one that Washington policymakers are well aware of.
- Nevertheless, until there is clarity on the duration or magnitude of tariffs, these actions inject uncertainty into supply chains and pricing for many companies – large and small – across North America.
- If these tariffs prove more enduring than our expectations, the North American auto and agriculture industries would likely be among the hardest hit. An escalation of tariffs leading to prolonged uncertainty and price shocks, specifically from crude oil, increase risks of a U.S. slowdown, although overall recession risk remains low currently.
- Notably, the 10% increased tariffs for China will most likely remain in place, though there could be exemptions of certain categories of goods. The new tariffs announced on China are still well below the 60% level cited as a potential on the campaign trail by President Trump.
- Despite these near-term crosscurrents, the U.S. economy’s adaptability should not be underestimated. The economy has shown resilience and dynamism following a once-in-a-generation pandemic, the highest inflation since the 1970s, and the fastest Federal Reserve (Fed) rate hiking cycle in decades.
- From a stock market perspective, our “Bull in a china shop” outlook title remains fitting. The primary market uptrend remains intact, but the latest tariff developments underscore the potential for disruptions and broken pieces that we expected to be part of the investment narrative in 2025.
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