Tariffs Rain Down (Everywhere)

MONETARY

• The Federal Reserve opted to leave its benchmark Fed Funds Target Rate unchanged at the current level of 425-450bps at the conclusion of its March meeting. Additionally, this FOMC meeting was accompanied by an update set of economic projections from the Fed regarding GDP growth, Unemployment, Inflation, and potential future Monetary Policy moves¹
  • Fed participants revised their GDP growth projections downward for CY 2025, having dropped them from the prior estimate of 2.1% to 1.7%. However, participants did not significantly alter their 2026 and 2027 growth projections – which remained relatively unchanged at the 2.0% level¹
  • Fed attributed its lower 2025 estimates to a combination of consumer sentiment and tariff related effects¹
    • (Federal Reserve) “And we get all that, and we do understand that sentiment has fallen off pretty sharply, but economic activity has not yet. And so we’re watching carefully, so I would tell people that the economy seems to be, seems to be healthy. We understand that sentiment is quite negative at this time, and that probably has to do with, you know, turmoil at the beginning of an administration. It’s making, you know, big changes in areas of policy. And that’s probably part of it. I do think the underlying unhappiness people have about the economy though is more, is more about the price level”¹
    • (Federal Reserve) “…there’s so many things we don’t know, but we kind of know there are going to be tariffs and they tend to bring growth down, they tend to bring inflation up in the first instance”¹
  • Fed participants made no adjustments to their outlook for Unemployment over the next 3yr period, a sign of continued confidence in the stability of the labor market¹
  • Regarding the Inflation outlook, Fed participants made only a slight upward adjustment for 2025’s inflation estimate, which rose from 2.5% to 2.8%. For 2026 and 2027 estimates were unchanged – a potential sign that the Fed sees any tariff related inflationary effects to be more of a one-time price adjustment rather than continually contributing inflation increases¹
    • (Federal Reserve) “You may have seen that goods inflation moved up pretty significantly in the first two months of the year. Trying to track that back to actual tariff increases, given what was tariff and what was not, very, very challenging. So, some of it. The answer is clearly some of it, a good part of it is coming from tariffs. But we’ll be, we’ll be working, and so will other forecasters to try and find the best possible way to separate non-tariff inflation from tariff inflation”¹
    • (Federal Reserve) “ (On the topic of transitory tariff inflation) So, I think, I think that’s kind of the base case, but as I said, we really can’t know that. We’re going to have to see how things actually, actually work out”¹
  • Additionally, the Fed made no adjustments to its expectations of where future monetary policy may trend, as FOMC participants grow increasingly comfortable taking a “wait-and-see” approach before adjusting policy¹
    • (Federal Reserve) “I’m confident that we’re well-positioned in the sense that we’re well positioned to move in the direction we’ll need to move. I mean I, I don’t know anyone who has a lot of confidence in their forecast. I mean the point is, we are — we are at, you know, we’re at a place where we can cut, or we can hold, what is a clearly a restrictive stance, of policy”¹
    • (Federal Reserve) “I think we’re not going to be in any hurry to move, and as I mentioned, I think we’re well-positioned to wait for further clarity. And not in any hurry”¹

 

GEOPOLITICS

• President Trump signs an executive order instituting reciprocal tariffs on over 180 countries and territories. The implementation of the reciprocal tariffs have multiple layers which effect certain countries, and may not effect others^2,3
  • First, a baseline tariff of 10% will apply to all goods imported into the U.S. which will take effect on April 5^2,3
  • However, certain countries’ imports to the U.S. will face much higher tariff rates than the baseline 10% imposed generally on all goods imports. These country-specific tariffs will take effect on April 9^2,3
  • The scale of each country-specific tariff (ones higher than the baseline 10%) is a function of the current tariffs that those countries place on U.S. exports of goods – as well as a function of the non-financial trade barriers implemented by those countries to de-incentivize U.S. exports. The White House listed the following examples of non-tariff trade barrier imposed on the U.S. by other countries^2,3
    • China:
      • Non-market policies have driven China’s manufacturing dominance, contributing to a loss of 3.7 million U.S. jobs (2001–2018) and increasing U.S. reliance on foreign-controlled supply chains^2,3
    • India:
      • Stringent and duplicative testing and certification in sectors like chemicals, telecom, and medical devices make it costly for American companies to sell in India, potentially costing the U.S. at least $5.3 billion in exports annually^2,3
    • China, Germany, Japan, and South Korea (Collectively):
      • These countries have adopted policies (e.g., regressive tax systems, weak environmental penalties, wage suppression) that limit domestic consumption to artificially boost the competitiveness of their export products^2,3
    • Argentina, Brazil, Ecuador, and Vietnam:
      • Restrictions or bans on remanufactured goods hinder market access for U.S. exporters and efforts toward sustainability, with estimates that lifting these barriers could boost U.S. exports by about $18 billion annually^2,3
    • United Kingdom:
      • Non-science-based standards in the UK severely limit U.S. exports of high-quality beef and poultry^2,3
    • Indonesia:
      • The country enforces local content requirements, complex import licensing, and new rules that will require natural resource firms to repatriate export revenue for large transactions^2,3
    • Argentina (Live Cattle):
      • Since 2002, Argentina has banned U.S. live cattle imports over unsubstantiated health concerns, contributing to a $223 million U.S. trade deficit in beef products^2,3
    • South Africa:
      • Unjustified animal health restrictions and high tariffs have drastically reduced U.S. pork and poultry exports, with poultry exports falling from $89 million in 2019 to $19 million in 2024^2,3
    • Japan and Korea (Automotive):
      • S. automakers face non-tariff barriers such as non-acceptance of U.S. standards, redundant testing, and transparency issues, resulting in an estimated $13.5 billion annual loss in exports and a worsening trade deficit with Korea^2,3
  • In most cases, the new country-specific tariffs imposed by the U.S. are still lower than the tariff rates charged by foreign countries on U.S. exports^2,3
    • (White House) “The United States has one of the lowest simple average most-favored-nation (MFN) tariff rates in the world at 3.3%, while many of our key trading partners like Brazil (11.2%), China (7.5%), the European Union (5%), India (17%), and Vietnam (9.4%) have simple average MFN tariff rates that are significantly higher.”^2,3
  • China’s tariff rate will now be an all-in penalty of 54%, which includes the new 34% country-specific tariff rate, as well as the 20% tariff rate imposed earlier on in the year^2,3
    • This is a very large uptick from the start of the year when China’s tariff rate was just 10%^2,3
    • Additionally, President Trump signed an executive order removing the “de-minimis” exception for low priced goods to enter the U.S. without facing tariffs – a move that is estimated to have a large impact on Chinese imports, potentially vastly increasing the amount of Chinese imports actually impacted by the tariffs^2,3
  • Canada and Mexico are excluded from the reciprocal tariff implementation, as they are subject to a different set of tariffs imposed by the Trump Administration earlier on in the year which equates to 25% on most goods imported^2,3
  • Separately, President Trump instituted a brand-new tariff on foreign-made autos being imported into the U.S. of 25%. This tariff is effective immediately^2,3

[See Below for Disclosures & Annotations]

 

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

 

ANNOTATIONS

1. The Federal Reserve. “Transcript of Chair Powell’s Press Conference”. March 19 2025.
2. The Wall Street Journal. “Tariff News, April 2, 2025: Trump Unveils Sweeping Levies in Stark Shift in Trade Policy”. April 3, 2025
3. The White House. “Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security”. April 2, 2025