Tariffs: What You Need to Know
- Holzberg Wealth Management
- Mar 14
- 7 min read
Updated: May 14
HWM Market Recap - March 2025
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Our firm strives to remain professionally neutral at all times regarding current events. Clients look to us during times of uncertainty to gain perspective on the market, help tune out the noise, and clarify misconceptions. We endeavor to offer context for your concerns and to personalize them within the grand sweep of economic history. All of this takes place considering your overall financial plan and our strategy as long-term investors. History has shown that the market moves up and down irrespective of the political party in power. Consequently, by maintaining our neutrality, we remain squarely focused on the markets and your needs.
With that said, we have received a number of questions from clients about several items. The most prevalent of these is tariffs, which we will review in this newsletter. Understandably, many of you may be concerned about this rapidly evolving topic. Here are the broad strokes:
Shortly after taking office, the new administration announced tariffs of 25% on imports from Canada and Mexico and an additional 10% on imports from China.
These countries account for 43% of U.S. imports. On the whole, higher tariffs on those three countries directly impact approximately 5% of the U.S. GDP.
The situation is evolving, with some tariffs being reversed and others remaining in place.
A tariff is essentially a tax on goods imported from other countries. But who pays the tax? While the U.S. importers (the companies bringing those goods into the United States) foot the tax bill, it is ultimately indirectly paid by some combination of the foreign country, the exporting company, the importer, consumers, and currency exchange rate adjustments.
While foreign countries do not pay the tax directly, they will still feel the effects. Higher costs to export goods to the U.S. can lead to decreased demand for their products, push manufacturers to move their operations to other non-tariffed countries, prompt importers to source goods from competing markets, or cause consumers to substitute alternatives to their previous product choices. Only time will tell how this will play out – for example, we have already seen retaliatory tariffs. However, various markets will continue identifying their choices and considering their trade-offs. (No pun intended.)
But what about the here and now? What are the potential financial repercussions of tariffs?
One helpful point of reference is that in 2017, the Trump administration focused on China, imposing tariffs on various products by 2018. Over the next couple of years, trade negotiations went back and forth, eventually leading to an agreement that left pre-existing tariffs in place. Regardless of the uncertainty, from January 2017 to December 2020, both China and the U.S. delivered stronger cumulative investment returns than the rest of the world.
Growth of $1 During President Trump’s First Term
January 2017–December 2020
The global economy is complex, and we certainly cannot predict the full impact of these tariffs. However, from a historical perspective, we can outline some potential effects on businesses and the economy if these tariffs remain in place.
As outlined above, U.S. importers bear at least part of the cost burden of tariffs. Obviously, U.S. companies can only control their own actions. Accordingly, they will make their adjustments in response to or in anticipation of those made by foreign companies.
Aside from substituting products, cost-cutting initiatives, and shifting to suppliers in non-tariffed countries, U.S. corporations have two primary options:
Absorb the added costs, which reduces their earnings and hurts investors.
Pass those costs on to customers through higher prices which hurts consumers.
Neither outcome is ideal, but besides business and economics, tariffs are political. They can be effective when used as leverage to achieve foreign policy objectives or rebalance trade relations. Nevertheless, experts generally agree that there are rarely any winners in a prolonged trade war.
One concern tied to tariffs is the possibility of stagflation – when inflation rises, economic growth slows, and unemployment climbs. But should this influence how investors manage their portfolios?
Since 1930, there have been twelve years when the U.S. experienced negative GDP growth alongside rising inflation (measured by the Consumer Price Index, or CPI). In nine of those twelve years, the U.S. stock market delivered positive returns, even adjusting for inflation. That positive rate is close to the frequency of positive inflation-adjusted returns across all years between 1930 and 2024, which is 68%.
This demonstrates that economic concerns should not be the sole factor driving portfolio decisions. Predictions about the direction of the economy are continuously forming, but the market itself remains the most reliable gauge of future outcomes. Market prices are continually adjusting to reflect known risks and opportunities. The ups and downs position markets for positive expected returns over time.
So, then, how should we think about tariffs as long-term investors?
The biggest impact for investors is likely to be increased uncertainty and volatility – some of which we have recently seen in the stock market. While the President has acknowledged that Americans could feel "some pain," he has also repeatedly pointed to the stock market as a key measure of his policy success. Adding to the unpredictability are rapid and frequent shifts in the course of tariff policy. Naturally, this makes it more difficult to know how things will unfold.
Looking at it from a long-term perspective, many argue that these policies will eventually become just another headline – one that fades from memory like so many before it.
Growth of a Dollar – MSCI World Index (Net Dividends)
1970–2023
We do not know what the future holds, but history shows that our economy endures. Past periods of volatility, no matter the cause, have ultimately provided an opportunity for disciplined investors. The plan is to stay on your investment course, to strategically rebalance your portfolio, and to maintain your strategy and risk profile.
Investing does not have to be a white-knuckle experience. Having a plan and maintaining a long-term strategy, regardless of the market's peaks and valleys, is the foundation upon which confidence and sleeping well at night are built. If you are feeling uneasy, we are here to help. As always, we are happy to discuss your investments and review how they align with your goals and risk tolerance.
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Monthly Changes in Indices
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Monthly Performance By Sector
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Interest Rates: The Fed did not meet in February, therefore, they made no changes to interest rates since their meeting in January. The next Fed meeting is scheduled for March 18-19.
Inflation: The Consumer Price Index (CPI) rose 0.5% month-over-month in January, after rising 0.4% in December. Over the last twelve months, CPI increased 3.0%. Core CPI (which excludes food and energy) increased 0.4% in January compared to December and rose 3.3% compared to a year ago.
Housing: According to the National Association of Realtors, existing home sales decreased 4.9% in January but rose 2.0% from one year ago. The median existing-home sales price rose 4.8% from January 2024 to $396,900 – the 19th consecutive month of year-over-year price increases. Sales of new single-family houses decreased 10.5% in January from December and decreased 1.1% from January 2024. The median sales price of new houses sold in January was $446,300.
Mortgage Rates: As of March 5th, 2025, the weekly average for a 30-year fixed-rate mortgage is 6.63%, slightly below the 52-week average of 6.75% and down 0.25% from a year ago.
Employment: According to the Bureau of Labor Statistics's Employment Situation Summary, unemployment was little changed in February at 4.1%. Employment increased in health care, financial activities, transportation and warehousing, and social assistance.
Consumer Sentiment: The University of Michigan's Surveys of Consumers for February slid 9.8% from January. Compared to its reading from one year prior, consumer sentiment is down 15.9%. Year-ahead inflation expectations increased from 3.3% in January to 4.3% in February – the highest reading since November 2023. Long-run inflation expectations increased from 3.2% in January to 3.5% in February – the largest month-over-month increase since May 2021.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.
