Right now, the 'What-if Monster' is tariffs.These import duties have hit the news lately, with the U.S. frequently inflicting and then removing (and then inflicting again) these taxes. This has led to uncertainty and a fear of what these levies might do to the economy. Let's break down what tariffs are, their potential impact, and what you can do to stay financially confident.

What Are Tariffs, and Why Do They Matter?

A tariff is a tax imposed on imported goods. It is typically a percentage of the good's value, which can be very high. Governments may use import taxes to encourage and support domestic production, protect a specific industry, or as a negotiating tool. These levies may apply broadly or be restricted to a specific product or country.

They do have strategic purposes, but can also trigger some problems, including:

1. Higher costs for consumers. The country of origin doesn’t pay the tariff—the importer does, and these costs are often passed on to consumers. It doesn't mean that a 25% tariff results in a 25% increase in cost; it depends on various factors, and the price increase can be lower or higher.
2. Disruptions in supply chains. Tariffs also affect the cost of components used in manufacturing, potentially disrupting supply chains. Typically, a country will retaliate against the impact of tariffs by levying its own, which can become a real issue if a part crosses the border and the final product crosses. Companies may try to source from areas unaffected by the tax, but their costs may increase and slow down shipping.
3. Market volatility. They induce uncertainty and can easily result in fluctuations in the stock market, affecting the value of investments.
4. Economic slowdown. Extended tariffs, reciprocal tariffs, or all-out trade wars can slow or even reverse economic growth, causing issues for everyone. These can also cause manufacturers to leave the country, resulting in job losses.

Should You Be Concerned About the Impact of Tariffs?

These taxes can be scary, and uncertainty about these fees can be even worse. The impact of tariffs in the past has been highly variable, depending on how they are implemented and how businesses and governments respond.

In the past, markets have adjusted over time, resulting in only short-term disruptions. You should not think about them when investing for the long term, thinking of these points:

1. Markets have weathered similar policies before. The broader economy will adapt, although inflation may have a long-term impact.
2. Diversify to mitigate risk. The more diverse and balanced your portfolio is, the less it will be affected by any policy change or global event.
3. Consumer demand and business innovation play an essential role in adapting to tariff changes. Companies change supply chains, develop alternative strategies, and adjust pricing to stay profitable.

The impact of tariffs may also be short-term if they are used in negotiation. These taxes might be placed for a few days or weeks and then removed.

Keeping the "What-if Monster" Quiet

Don't let fear drive your decisions. Focus on the long-term and keep your investments diverse. Avoid making rushed decisions based on short-term tariff impacts. Instead, mitigate risk by maintaining a well-diversified portfolio.

Economic policies, including tariffs, will constantly shift over time. A diverse portfolio can weather any of these storms, so make sure you are using a sound investment strategy so the "What-if Monster" doesn't keep you up at night.

If you are worried about the impact of tariffs on your portfolio and financial plan, contact CrossleyShear today. Let us review your portfolio and help you adjust things so you can navigate the current economic uncertainty and maintain financial security in the long term.

Any opinions are those of Dale Crossley and Evan Shear and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification.