News and Insights
Tariffs Are Roiling Markets. Here's What Financial Advisors Are Telling Clients
Amy Hamasaki, owner, president, Mountain Wealth Planning: Most economists will agree that tariffs are inflationary and as prices increase, this will slow consumer spending, consumption, and that will eventually lead to lower GDP growth that would pave the way for possible stagflation. The way these tariffs have been announced has created a lot of uncertainty. Changes are happening minute by minute, and companies are making huge decisions about where manufacturing will go.
That creates a lot of uncertainty. The three primary industries all of this is really impacting right now are pharmaceuticals, apparel, and automotive. To create a new pharmaceutical plant, for example, takes a really long time. So leaders of these huge mega corporations are left scratching their heads. That in itself will lead to lower growth. I’m telling clients to have a little tilt to the international side, both developed and emerging, to help buffer internal U.S. markets.
Diversification is key, along with maintaining ample cash reserves of between three and 12 months of basic living expenses. Because if we have slower economic growth, we’re probably going to have higher levels of unemployment. And focus on the long haul, because looking at these short-term market movements can be very disconcerting. Stay true to your objectives and don’t react emotionally to any of the whipsaw movements right now.
A lot of people want to sell, and others want to buy at these lower prices. I say let’s maintain a stable strategic investment strategy, with no changes at this time. Stay the course.
Tariffs & Market Turbulence: Financial Professionals on What to Consider
In this citybiz article, Amy Hamasaki, CFP®, Founder of Mountain Wealth Planning contributes the following comments:
A tariff is essentially a tax on imported goods to make them more expensive. This tax is paid by domestic companies importing the goods, and not the foreign companies exporting them. This in turn, is then passed onto the domestic consumer. The theory here is to increase the cost of imported goods and thus make them less attractive, enticing domestic consumers to purchase goods domestically.
The rationale behind implementing a tariff, historically, is to stimulate domestic manufacturing by protecting industries internally, influence other countries on policies, and in part to generate revenue through the collection of taxes from domestic economic activity.
Economists largely consider tariffs to be inflationary as domestic producers tend to increase their prices due to lack of foreign competition and due to the increased costs of raw materials sourced from foreign countries – think Musk and sourcing all of his foreign-based car parts for Tesla.
Inflationary environments effectively squeeze profit margins for domestic industries. Should domestic consumers not wish to ‘pony up’ for the more expensive products, economic activity slows – domestically. If this occurs, domestic companies will be forced to implement hiring freezes, and potentially layoffs, to protect their now slimmer profit margins. Curbing employers spending on wages is the primary way companies can protect their profitability.
Additionally, tariffs cause a disruption of global supply chains, incite foreign currency fluctuations and create heightened market volatility. Historically global markets tend to outperform the U.S. during tariff policy initiatives.
Most U.S. industries and manufacturers rely on sourcing their raw materials outside of the U.S. By inflicting this Trade War, we are essentially curbing domestic productivity (GDP) and thus hurting our own labor market.
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