Richard Weiss, Chief Investment Officer, and Nancy Pilotte, CAIA, Senior Client Portfolio Manager of Multi-Asset Strategies at American Century Investments, have published research on the impact of proposed tariffs on US inflation and economic growth.
Pilotte’s Tariffs 101: What You Should Know defines tariffs as taxes or duties on imported goods. The importer of goods must pay the import duties at the port of entry. While the importer of the goods is the entity that physically pays the tariff, the revenue to exporters and the costs to consumers may also be impacted. Exporters may reduce costs to maintain sales, while importers may choose not to pass along the full cost of the tariffs to consumers. Recent tariffs in the US have mainly been charged to consumers in the form of higher prices on imported goods.
Tariffs are enacted to serve three purposes: to raise revenue for the country charging the tariffs, to restrict imports and protect domestic industries, and to pressure other countries to reduce barriers to trade. Pilotte presents evidence that tariff revenue is a small part of the US federal government’s budget and that tariffs have not historically increased US employment. Tariffs are likely to reduce the quantity of imported goods, limiting the options of products available to US consumers.
Weiss’s Navigating Economic Shifts: Recession Risks and Market Signals examines the financial market impact of the often shifting tariff policies. Stocks tend to weaken on headlines regarding a stricter stance on tariffs and surge on delays or potential declines or deals on tariffs. While tariff headlines have been inducing financial market volatility, Weiss encourages investors to stick with their investment plan, which can reward those who invest for the long term.
Weiss notes that there is a potential for tariffs to slow the economy and speed inflation. The US experienced negative Gross Domestic Product (GDP) growth in the first quarter of 2025, perhaps driven by the policy uncertainty. Consumer confidence and retail sales have been declining sharply. If tariffs are implemented, the probability of a recession rises, and the US inflation rate may increase by 0.5% to 0.8%. With consumers expecting inflation to rise to 5% over the next year, the Federal Reserve has little room to reduce interest rates.
It is important to remember that GDP is defined as the sum of consumer spending, corporate investments, government spending, and net exports. Much of the recent conversation has surrounded government spending, at 17% of GDP, and net exports at -3% of GDP, meaning that imports exceed exports by 3%. Policies aimed at reducing government spending and improving net exports directly impact only 14% of the economy. Declining sentiment of consumers and businesses, who drive 86% of the economy, can lead to lower spending, perhaps having a larger effect than the changes in the government and global trade sectors.
Weiss also explains the Smoot-Hawley Tariff Act of 1930, which raised tariffs by 40% to 60% on thousands of imported goods. In reaction to the Smoot-Hawley Act, trading partners enacted retaliatory tariffs, which led to a sharp decline in global trade. While the US Congress had oversight of tariffs in the 1930s, today’s tariff discussion is led by the Executive Branch, with little input from Congress.
WEBCAST – Bull Market? Bear Market? Arguments and Portfolio Implications
Under Trump 2.0, policy, economic conditions and market volatility have all increased significantly. Both positive and negative economic and market outcomes are possible. Rich Weiss and Nancy Pilotte guide you through the bullish and bearish scenarios and their implications for your clients’ investment portfolios.
- Distinguishing between “hard” and “soft” economic data.
- The impact of tariffs: Are they harbingers of stagflation or catalysts for revitalizing the manufacturing sector?
- Strategy considerations for portfolios in a world of uncertain outcomes.
Regardless of your perspective, relying solely on hope or fear is not a viable investment strategy — we can assist you in helping your clients find a balanced approach.
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