Market Pulse: What to Know About Upcoming Tariffs

2025 is officially here, and with the upcoming change in administration, tariffs continue to be one of the more dominant topics in economic news and have a growing importance in economic policy. The ongoing tariff rhetoric is shifting constantly, making it nearly impossible to predict the timing, scale, and potential impact of upcoming tariff policies. One of the pervading concerns is that tariffs may lead to an increase in inflation. However, past experience generally indicates that a one-time adjustment in prices is more likely. The effects of tariffs are highly complex, and it is equally inaccurate to assert that all tariffs are either entirely beneficial or detrimental. When applied strategically, tariffs can enhance domestic production to a degree that offsets their impact on consumer prices. For example, China used tariffs strategically to go from being a small player to a global leader in electric vehicle production in just a few years. That said, it’s also important to remember that escalating tariff disputes can have other negative economic implications.

Changing Market Conditions: A More Complex Landscape

Tariff policies enacted between 2016 and 2020 had a relatively limited impact. However, this time, the rhetoric appears stronger, and with the market environment vastly more complex from the recent wave of inflation still lingering, an escalating tariff war could have a larger impact on prices. Additionally, tighter immigration policies and increased fiscal spending add to the risk of inflation re-accelerating. We’ve highlighted the unusual behavior of Treasury yields post-election as one of the signs.

Portfolio Allocation: Considerations for 2025

As you plan for 2025, it’s important to review your portfolio allocation for opportunities to defensively posture against the risk of unexpected inflation. Certain securities are designed to perform well when inflation exceeds expectations, and based on current market conditions, may present attractive buying opportunities and higher income. As with any investment, it’s important to be aware of potential risks, such as sensitivity to interest rates and the possibility of lower returns in deflationary environments.

If you have any questions or would like to discuss how these securities may fit into your strategy, feel free to reach out to contact us at wealthconfidant@highlandprivate.com.